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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission File No. 1-13082
KENNETH COLE PRODUCTIONS, INC.
(Exact name of Registrant as specified in its charter)
New York 13-3131650
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
603 West 50th Street, New York, NY 10019
(Address of Principal Executive Offices)
(212) 265-1500
Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Class A common stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of the voting stock held by
nonaffiliates of the registrant as of the close of business on
March 27, 2001: $235,475,920
Number of shares of Class A Common Stock, $.01 par value,
outstanding as of the close of business on
March 27, 2001: 11,377,417
Number of shares of Class B Common Stock, $.01 par value,
outstanding as of the close of business on
March 27, 2001: 8,588,097
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K is incorporated
herein by reference to the Registrant's definitive proxy
statement to be mailed to the shareholders of the Registrant by
April 29, 2001.
Kenneth Cole Productions, Inc.
TABLE OF CONTENTS
Page
PART I
Item 1 Business 3
Item 2 Properties 15
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
PART ll
Item 5 Market for Registrant's Common Equity and Related Shareholder
Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Item 7A Quantitative and Qualitative Disclosures about Market Risk 22
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 22
PART lll
Item 10 Directors and Executive Officers of the Registrant 23
Item 11 Executive Compensation 23
Item 12 Security Ownership of Certain Beneficial Owners and Management 23
Item 13 Certain Relationships and Related Transactions 23
PART lV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
Item 1. Business
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the
"Act") and Section 21E of the Securities Exchange Act of 1934
provides a safe harbor for forward-looking statements made by or
on behalf of Kenneth Cole Productions, Inc. (the "Company"). The
Company and its representatives may from time to time make
written or oral statements that are "forward-looking," including
statements contained in this report and other filings with the
Securities and Exchange Commission and in reports to the
Company's shareholders. Forward-looking statements generally
refer to future plans and performance and are identified by the
words "believe," "expect," "anticipate," "plan," "intend,"
"will," or similar expressions. All statements that express
expectations and projections with respect to future matters,
including, but not limited to, the launching or prospective
development of new business initiatives, "Year 2000" issues,
future licensee sales growth, store expansion and openings, and
the introduction of the Euro are forward-looking statements
within the meaning of the Act. These statements are made on the
basis of management's views and assumptions, as of the time the
statements are made, regarding future events and business
performance. There can be no assurance, however, that
management's expectations will necessarily come to pass. A number
of factors affecting the Company's business and operations could
cause actual results to differ materially from those contemplated
by the forward-looking statements. Those factors include, but
are not limited to, changes in the domestic and economic
conditions or in political, economic or other conditions
affecting foreign operations and sourcing demand and competition
for the Company's products, changes in consumer preferences on
fashion trends, delays in anticipated store openings and changes
in the Company's relationship with its suppliers and other
resources. This list of factors that may affect future
performance and the accuracy of forward-looking statements is
illustrative, but by no means exhaustive. Accordingly, readers
of this Annual Report should consider these facts in evaluating
the information and are cautioned not to place undue reliance on
the forward-looking statements contained herein. The Company
undertakes no obligation to update or revise publicly any forward
looking statements, whether as a result of new information,
future events or otherwise.
General
Kenneth Cole Productions, Inc. incorporated in September 1982,
designs, sources and markets a broad range of fashion footwear
and handbags, and through license agreements, designs and markets
apparel and accessories under its Kenneth Cole New York, Reaction
Kenneth Cole and Unlisted brand names. The Company's products
are targeted to appeal to fashion conscious consumers, reflecting
a casual urban perspective and a lifestyle uniquely associated
with Kenneth Cole. These products include core basics that
generally remain in demand from season to season and fashion
products that are designed to establish or capitalize on market
trends. The combination of basics and fashion styles provides
freshness in assortments and maintains a fashion-forward image,
while a multiple brand strategy helps diversify business risk.
The Company markets its products to more than 4,100 department
and specialty store locations, as well as through its consumer
direct business, which includes an expanding base of retail and
outlet stores, consumer catalogs and interactive websites,
including an on-line store. The Company believes the diversity
of its product offerings distinguishes the Company from its
competitors in terms of product classifications (men's, women's
and children's footwear, handbags, apparel and accessories),
prices (from ''better'' to ''moderate'') and styling. The Company
believes that the diversity of its Company's product mix provides
balance to its overall product sales and business planning and
increases sales opportunities to wholesale customers who do not
carry the Company's full range of products.
The popularity of the Kenneth Cole brand names among consumers
has enabled the Company to expand its product offerings and
channels of distribution through licensing agreements
selectively. The Company, through licensing agreements, offers a
lifestyle collection of men's product categories including
tailored clothing, dress shirts, sportswear, neckwear,
briefcases, portfolios, jewelry, belts, leather and fabric
outerwear, sunglasses, optical eyewear, watches, luggage,
hosiery, underwear, robes, loungewear and small leather goods.
During 1999, the Company entered into a major multi-brand
initiative to launch women's apparel and began selling Kenneth
Cole New York sportswear during the Fall 2000 season. Other
women's product categories currently being sold pursuant to
license agreements include small leather goods, belts, scarves
and wraps, hosiery, leather and fabric outerwear, sunglasses,
optical eyewear, watches, jewelry and luggage.
Business Growth Strategies
The Company's strategy is to continue to build upon the
strength of its lifestyle brand franchise, which is comprised of
three well-differentiated and distinct brands: Kenneth Cole New
York, Reaction Kenneth Cole and Unlisted. The Company views its
lifestyle brands as a vital and significant strategic asset and
the foundation for a sustainable competitive advantage. The
Company believes that further segmentation and development of the
three brands afford enormous growth potential within each of the
Company's business segments.
Wholesale. By strengthening and streamlining its department
store distribution channels, the Company continues to reinforce
the segmentation of its three brands at wholesale, promoting even
greater growth capability for each in the future. This will
facilitate the broadening of product offerings, attract new
customers and further enables the Company to address a wider
variety of customers' needs domestically and abroad. By
combining retail and wholesale merchandising functions, the
Company is in a better position to respond quickly to market
changes enabling each wholesale division to deliver appropriate
fashions in a more timely and effective manner. This approach
has been effective in maintaining the strength of the women's
Kenneth Cole New York and Reaction Kenneth Cole branded footwear
business' in a difficult and challenging environment.
Consumer Direct. The Company's Consumer Direct segment, which
operates full price retail and outlet stores, as well as catalogs
and e-commerce websites, affords significant growth potential
while simultaneously complementing the existing wholesale and
licensing businesses. The Company believes that the sale of
footwear, handbags and licensed products through its consumer
direct channels of distribution increase consumer awareness of
the Company's brands, reinforces the Company's image and builds
brand equity. Wholesale customers in cities with a Kenneth Cole
retail presence have consistently out performed those without.
The Company continues to pursue opportunities to expand its
retail store operations. As of December 31, 2000, the Company
operated 69 specialty retail and outlet stores as compared with
61 stores as of December 31, 1999. The Company plans to open or
expand approximately 7 to 12 stores in 2001, expanding retail
square footage by approximately 20% to 25%. This anticipated
expansion includes outlet stores, which provide opportunities for
the Company to sell excess and out-of-season merchandise, thereby
reducing the need to sell such merchandise through its regular
off-price channels of distribution or to discounters at low
prices. To accommodate the Company's diversity of product
offerings, larger format stores were introduced in late 1998.
During 1999 and 2000, the Company opened several larger format
stores and anticipates similar openings in the future. The
Company believes that these larger format stores will generate
increased sales and profitability as this new retail model allows
for a true-cross section of both Company and licensee products,
enabling the Company to present the broad lifestyle offering that
consumers want to see. In addition, the Company expects to
realize certain economies in several selling and administrative
expense areas.
The Company continues to invest in the enhancement, visual
presentation and development of its websites to capitalize on the
growth of the Internet and emerging technologies. The Company
believes that e-commerce will be a meaningful contributor in the
Company's future, both as a source of consumer information and as
a generator of new revenue. Among other things, the websites are
designed to create additional revenues through a new distribution
channel, build brand equity, fortify image, increase consumer
awareness, improve customer service, provide entertainment and
promote supporting causes the Company believes are important to
its customers. The Company has strengths in its existing
capabilities in customer service, including multiple toll-free
telemarketing lines, merchandising, catalog, fulfillment and e-
commerce. Accordingly, the Company believes it has a strategic
advantage over those just beginning to develop an on-line
commerce presence.
In addition to seasonal image campaigns via traditional
advertising media, the Internet has enabled the Company to
communicate directly with its customers and have its customers
communicate directly with the Company. The Company's use of its
websites to capture and process this relevant market data on its
consumers base, provides a greater understanding of its customers
and market trends. The Company believes this dynamic
relationship is invaluable for building customer loyalty.
Further, the Company's Internet presence through multiple
websites has enabled the creation of a substantial e-mail
database by which the Company's marketing and customer service
departments regularly interact with its existing and new
consumers on-line.
Licensing/International. The growing strength of the Company's
three brands, Kenneth Cole New York, Reaction Kenneth Cole and
Unlisted, provides opportunities, through licensing agreements,
to expand into new product categories and broaden existing
distribution channels. Licensed product sales continued to grow
and represent about half of the Company's brand sales at retail.
Many of the existing licensee businesses are still relatively new
in their individual product classifications and the Company
believes they hold impressive growth potential.
The Company chooses its licensing partners with care
considering many factors, including the strength of their
sourcing and distribution abilities, thereby attempting to
maintain the same value and style that Kenneth Cole customers
have come to expect. Within these strategic parameters the
Company began a major multi-brand initiative and launched the
Company into the women's apparel market under an exclusive
womenswear license agreement with Liz Claiborne, Inc. During the
Fall 2000 season Liz Claiborne, Inc. presented its first
collection of Kenneth Cole New York contemporary sportswear.
Under the agreement, Liz Claiborne Inc. will also produce a
women's sportswear line under the Reaction Kenneth Cole brand for
the Fall 2001 season and subsequently launch a junior line under
the Unlisted brand expected in 2002. The Company believes that
women's apparel will grow into its largest licensee product
classification and will further define and enhance the Company's
brands, improving its ability to deliver exactly what the
Company's customer seeks. The Company has also entered into an
agreement to produce fragrances worldwide with a division of LVMH
Mo,t Hennessy Louis Vuitton that it believes will bring greater
consumer acceptance to its brands both domestically and
internationally. The first product launch is expected during
Fall 2002.
The Company's brands are currently licensed for a range of
products consistent with the Company's image (see
"Licensing/International" in Item 1).
Products
The Company markets its products principally under its Kenneth
Cole New York, Reaction Kenneth Cole and Unlisted brand names;
each brand is targeted to appeal to different consumers. The
Company believes that the Kenneth Cole brand name has developed
into a true aspirational lifestyle brand, and while it has
similar designer cache as other international designer brands, it
has value credibility most do not.
Kenneth Cole New York
Kenneth Cole New York products are generally designed for the
fashion conscious consumer and reflect the relaxed urban
sophistication that is the hallmark of the Kenneth Cole New York
image. The distinctive hip styling of this line has established
Kenneth Cole as a fashion authority for sophisticated urban men
and women who are seeking a value alternative to other designer
brands. As a result of strong brand recognition and a reputation
for style, quality and value, the Company believes that Kenneth
Cole New York has become a core resource for better department
and specialty stores, continuing to provide significant growth
opportunities. The product offering has evolved from a very
trendy line into one with broad appeal, including both fashion
forward styling and core basics. The Company continues to
leverage the strength of the name through brand extensions (e.g.,
Kenneth Cole Collection), in-store shops and the licensing of
many new product categories.
Kenneth Cole New York men's footwear, primarily manufactured in
Italy, is designed as contemporary, comfortable fashion footwear
and is sold to the bridge-designer market at retail price points
ranging from $145 to $190. As versatile as it is sophisticated,
Kenneth Cole New York men's footwear may be worn to work, for a
special occasion or on weekends with casual clothes.
Kenneth Cole New York women's footwear, primarily manufactured
in Italy, includes sophisticated and elegant dress, casual and
special occasion (e.g., bridal) footwear that is sold to the
bridge-designer market at retail price points ranging from $125
to $180. Women's footwear is generally constructed with leather
soles and linings and fabric uppers.
Kenneth Cole New York handbags are sleek designer bags offered
at affordable prices, generally made of quality leathers and are
sold to the bridge-designer market at retail price points ranging
from $110 to $250. Certain updated styles offer the customer
high fashion day bags, while evening bags make strong
sophisticated statements in satins and updated silhouettes.
Reaction Kenneth Cole
Reaction Kenneth Cole consists of a variety of product
classifications which address the growing trend toward flexible
lifestyle dressing. Originally introduced as a comfort-oriented
casual line, Reaction Kenneth Cole now includes more dressy
styles. Reaction Kenneth Cole women's footwear is designed for
the workplace as well as outside the office, with an emphasis on
comfort, contemporary styling and value. It is targeted to
compete in the largest single category of footwear sold in
department stores, women's "better" casual, and the majority of
the line retails in the $60 to $90 price range. Reaction Kenneth
Cole men's footwear combines fashionable and versatile styling
with affordable pricing and is positioned in the fastest growing
classification in the men's market as consumer preferences lean
away from athletic constructed footwear toward regular
constructed footwear. This line retails in the $100 to $135
price range.
Reaction Kenneth Cole handbags are designed to be
multifunctional with a contemporary look and are primarily made
of non-leather technical fabrications, such as nylon, microfiber
and canvas. Reaction Kenneth Cole Reaction handbags, including
Essentials, Itemize and the Reactive collections, are one of the
fastest growing product classifications and have been created to
meet the varying needs of the Company's customers. This line
generally retails at price points ranging from $40 to $70.
Reaction Kenneth Cole children's footwear, primarily
manufactured in Brazil, includes dress and casual footwear sold
at price points ranging from $30 to $60 and is targeted to boys
and girls ages 6 to 12 who are making more of their own fashion
choices than ever before. The Company believes that the
expansion into children's footwear is a natural extension of its
footwear business and that its use of styles based upon
successful performers in its existing men's and women's styles,
greatly enhances the likelihood of product performance. The
success of children's footwear has led the Company to introduce
Reaction Kenneth Cole toddler footwear which has retail price
points around $50. This addition is expected to further
penetrate the children's marketplace and enhance the lifestyle
component of Kenneth Cole.
Unlisted
Unlisted products are designed and targeted to the younger,
trendier consumer market, the country's largest consumer base of
fashion merchandise. The Unlisted brand was developed to expand
the Company's sales into a younger, more moderately priced
business and includes approximately 60 styles of women's casual
and dress shoes per season accompanied by a selection of handbag
styles.
Unlisted footwear provides the junior consumer with a wide
selection of footwear with contemporary styling and quality at
affordable prices. Unlisted women's footwear includes not only
fashion styles, but also evening styles, basic pumps and loafers
that generally retail at price points ranging from $35 to $65.
During 1999, the Company launched Unlisted men's footwear and is
exploring distribution channels and licensing agreements to
expand this brand further. The line includes casual and evening
assortments with a variety of fashion styles to compliment the
selection of approximately 50 styles per season. The Unlisted
men's footwear is expected to appeal to a broader young men's
market with shoes that range at retail price points from $60 to
$90.
Unlisted handbags are designed for the younger price-conscious
trend-driven consumer and consist of trendy bags in vinyl, straw
and other exciting fabrics. Unlisted handbags generally retail
at price points ranging from $30 to $50.
Business Segments
The Company primarily distributes its products through
Wholesale and its own Consumer Direct distribution channels.
During the periods presented below, the percentage of net
revenues contributed by the Company's business segments were as
follows:
Year Ended
December 31,
2000 1999 1998
Wholesale 58% 60% 66%
Consumer Direct 37 35 30
Licensing/International 5 5 4
---- ---- ----
Total 100% 100% 100%
Wholesale Operations
The Company strives to provide affordable fashion footwear,
handbags and accessories with consistent marketing and management
support to its wholesale customers. The Company provides this
support by producing strong image driven advertising, offering
creative quality products and maintaining adequate inventory
levels of new products as well as products included in the
Company's open stock program. The Company employs a sales force
as well as corporate account specialists to sell its products and
to manage its relationships with its wholesale customers,
including analyzing and monitoring their selling information.
The Company's products are distributed to more than 1,400
wholesale accounts for sale in more than 4,100 store locations in
the United States. The Company markets its branded products to
major department stores and chains, such as the department store
divisions of Dayton Hudson Corporation, Dillard Department
Stores, Inc., Federated Department Stores (including Macy's,
Bloomingdales, and Burdines), and upscale specialty retailers,
including Saks Fifth Avenue and Nordstrom, Inc. In addition, the
Company sells out-of-season branded products and overruns through
the Company's outlet stores and to off-price retailers. The
Company also sells its products, directly or through
distributors, to customers in various international markets
including Canada, Mexico, Hong Kong, Japan, Taiwan, the
Philippines and Singapore.
The Company markets its product lines and introduces new styles
at separate industry-wide footwear and handbag tradeshows that
occur several times throughout the year in New York, Las Vegas
and at various regional shows. These shows also afford the
Company the opportunity to assess preliminary demand for its
products. After each show, the Company's sales force and
corporate account specialists visit customers to review the
Company's product lines and to secure purchase commitments. The
Company's products also are displayed at separate handbag and
footwear showrooms in New York.
Private Label
The Company also designs, develops and sources private label
footwear and handbags for selected retailers. These private label
customers include major retailers that do not purchase the
Company's brands. The Company's private label business requires
minimal overhead and capital because the Company does not incur
any costs related to importing, shipping or warehousing of
inventory, all of which are borne by the customer.
Consumer Direct Operations
Retail Operations
The Company continues to pursue several opportunities to
enhance and expand its retail operations. At December 31, 2000,
the Company operated 45 specialty retail stores and 24 outlet
stores under the Kenneth Cole New York name.
The Company's specialty retail stores develop consumer
recognition of its brand names, provide a showcase for Kenneth
Cole branded products marketed by the Company and its licensees
and enhance the Company's overall profitability. The Company
believes that these stores complement its wholesale business by
building brand awareness. In addition, Kenneth Cole retail stores
enable the Company to reach consumers who prefer the environment
of a specialty store. In addition to its Kenneth Cole stores and
the success of Reaction at wholesale, the Company plans on
testing its first Reaction stand-alone store in New York City
during the second half of 2001 to further enhance its growth
opportunities. Approximately 20% to 25% of the Company's retail
store products are sourced exclusively for such stores to
differentiate the product mix of its stores from that of its
wholesale customers. The Company opened four retail stores in
2000, and plans to open or expand four to eight new stores in
2001.
At December 31, 2000, the Company operated 24 outlet stores.
The Company's outlet stores enable it to sell a portion of its
excess wholesale, retail and catalog inventory in a manner that
it believes does not have an adverse impact on its wholesale
customers and the Company's retail operations. The Company
generally does not make a style available in its outlet stores or
to off-price retailers until wholesale customers have taken their
first markdown on that style. The Company anticipates that it
will require additional outlet stores as higher levels of sales
are achieved and additional retail stores are opened. The
Company opened five outlet stores and plans to open or expand
three to five stores in 2001.
The success of the Company's new and existing stores will
depend on various factors, including general economic and
business conditions affecting consumer spending, the acceptance
by consumers of the Company's retail concept, the ability of the
Company to manage successfully such expansion, hire and train
personnel, the availability of desirable locations, the
negotiation of acceptable lease terms for new locations and the
expansion of the Company's management information systems to
support the growth of its retail operations. The Company
believes that its retail stores further enhance its image and
represent an opportunity for revenue and earnings growth.
Catalog, Website and Customer Service
The Company produces consumer catalogs that feature a variety
of Kenneth Cole New York and Reaction Kenneth Cole branded
products. Catalog order-taking and fulfillment for accessories
and apparel used to be performed by a third party service located
in Virginia. During the latter half of 2000, the Company began
both order-taking and the fulfillment of footwear, handbags and
most of licensee product classifications from its distribution
center in New Jersey. This has enabled the Company to react more
quickly to consumer demand, improve distribution response and
manage its inventory.
The Company maintains websites to provide information regarding
the Company and its products, as well as to develop an e-commerce
business. In 2000, the Company improved its e-commerce sites
Kennethcole.com, Reactiononline.com, and Unlisted.com, a
marketing site without e-commerce, targeting younger Generation Y
(ages 12 to 24) consumers. The Company plans to continue to
invest in the internet and emerging technologies and believes
that based on its existing merchandising, fulfillment and
marketing capabilities, it is well positioned to deliver an on-
line commerce solution with nonpareil customer service. The
Company also maintains two toll-free telephone numbers (1-800-KEN-
COLE and 1-800-UNLISTED) which provide customer service and
answer product-related questions.
Licensing/International
Licensing
The Company views its licensing agreements as a vehicle to
serve its customers better by extending its product offerings,
allowing more of its consumers to meet their fashion accessory
needs without compromising on price, value or style. The Company
considers entering into licensing, and distribution agreements
with respect to certain products if such agreements provide more
effective sourcing, marketing and distribution of such products
than could be achieved internally. The Company continues to
pursue opportunities in new product categories that it believes
to be complementary to its existing product lines.
Licensees range from small to medium size manufacturers to
companies that are among the industry leaders in their respective
product categories. The Company selects licensees that it
believes can produce and service quality fashion products
consistent with the Kenneth Cole New York, Reaction Kenneth Cole
and Unlisted brand images. The Company communicates its design
ideas and coordinates all marketing efforts with its licensees.
The Company generally grants licenses for three to five year
terms with renewal options, limits licensees to certain
territorial rights, and retains the right to terminate the
licenses if certain specified sales levels are not attained. Each
license provides the Company with the right to review, inspect
and approve all product designs and quality and approve any use
of its trademarks in packaging, advertising and marketing.
In 2000, the Company captured significant shelf space in better
department stores for its men's apparel collection as it further
rolled out tailored clothing, men's sportswear and dress shirts.
This was an important step in further defining Kenneth Cole as a
premier lifestyle brand as its distinctive image is consistently
developed across an expanding number of products, brands and
markets. Through its licensing agreement with Liz Claiborne
Inc., the Company launched Kenneth Cole women's sportswear during
Fall 2000. This debut into women's fashion will be followed by
the launch of Reaction Kenneth Cole in Spring 2001, followed by
Unlisted expected in Fall 2002. The Company believes the
addition of womenswear will further define and differentiate its
brands, enabling the Company to better meet its customer's needs
and lifestyle.
The following table summarizes the Company's licensed product
categories:
Kenneth Cole Reaction
Product Category New York Kenneth Cole Unlisted
Men's Tailored Clothing X X
Men's Sportswear X X
Men's Neckwear X X
Men's Underwear, Robes, Loungewear X X
Men's Dress Shirts X X
Men's Leather & Fabric Outerwear X X
Men's Small Leather Goods X X X
Women's Sportswear X X X
Women's Small Leather Goods X X X
Women's Leather & Fabric Outerwear X X
Women's Scarves & Wraps X X
Men's/Women's Hosiery X X
Men's/Women's Belts X X
Men's/Women's Jewelry X X
Men's/Women's Watches X X
Men's/Women's Optical Frames X X
Men's/Women's Luggage/Briefcases X X
Men's/Women's Sunglasses X X X
Kid's Leather & Fabric Outerwear X
All of the Company's licensees are required to contribute to
the Company a percentage of their net sales of licensed products,
subject to minimum amounts, for the ongoing marketing of the
Kenneth Cole brands.
International
The Company sells its products through distributors and
licensees to wholesale customers and direct retailers in markets
including Canada, Mexico, Hong Kong, Japan, Taiwan, the
Philippines and Singapore. The Company plans to continue to
expand its international licensing programs and presence as a
means of developing a truly global brand. The Company also
operates one retail store in the Netherlands.
The Company has licensing agreements presently with Dickson
Concepts, Ltd. ("Dickson") to retail Kenneth Cole New York and
Reaction Kenneth Cole branded products through established
freestanding stores in Hong Kong, Taiwan and Singapore. Dickson
presently operates five freestanding stores in these countries as
well as several shop-in-shops. Each store carries a selection of
merchandise, which is also available in the Kenneth Cole domestic
retail stores. In the Spring of 2000, men's sportswear was
introduced in the Hong Kong and Singapore stores for the first
time. The Company is anticipating the opening of additional
stores in Hong Kong, Singapore and Taiwan and is also planning to
expand the size of the existing stores to accommodate the
expanded product class.
During 1998, the Company entered into an agreement with Store
Specialists, Inc. (Rustan's Department Store) to sell the Kenneth
Cole New York and Reaction Kenneth Cole products throughout the
Philippines in leased shop-in-shop environments as well as
freestanding stores. In late 2000, the Company opened its second
freestanding store at Rockwell Center in Makati.
The Company, through licensing arrangements, continues to sell
and market its products in Canada. The majority of product
classifications available domestically are also available in
Canada. During 2000, the Company opened a street front shop-in-
shop at the Eaton's Center store in Toronto and in the Spring
2001 is planning to launch women's sportswear in Canada through
the Company's licensee, Liz Claiborne, Inc.
The Company also signed international distributor agreements
for the wholesaling of optical eyewear and watches, which are
currently available in the United Kingdom, Mexico, Canada and
Scandinavia. During 2001, a licensing agreement for Latin
America was executed. This agreement covers Latin America and
the Caribbean, with the exception of Brazil, Argentina and
Uruguay. The relationship will allow for the establishment of
flagship stores in key countries and approximately 25
freestanding stores as well as a wholesale distribution of most
key product classifications throughout the region.
During March 2001, the Company announced a license agreement
with LVMH Mo,t Hennessy Louis Vuitton's Perfumes and Cosmetics
Group's Parfums Givenchy, Inc. ("LVMH"), the world's leading
luxury products group, to create, distribute, and market Kenneth
Cole Fragrance and body products. Drawing upon Kenneth Cole's
creative strength, the Company's established brands, and the
resources of LVMH, Parfums Givenchy, Inc. will orchestrate the
global development, marketing and distribution of several Kenneth
Cole Fragrances worldwide. Plans include the launch of both
men's and women's fragrance lines for Kenneth Cole New York,
Reaction Kenneth Cole and Unlisted brands. The first is expected
for the Fall 2002 season.
Design
Kenneth D. Cole, Chief Executive Officer and President, founded
the Company and its success to date is largely attributable to
his design talent, creativity and marketing abilities. Mr. Cole
selects designers to join a design team to work with him in the
creation and development of new product styles. Members of each
design team work together with Mr. Cole to create designs that
they believe fits the Company's image, reflects current or
approaching trends and can be manufactured cost-effectively.
The Company's design teams constantly monitor fashion trends
and search for new inspirations. Members of the various teams
travel extensively to assess fashion trends in Europe, the United
States and Asia and work closely with retailers to monitor
consumer preferences. The process of designing and introducing a
new product takes approximately three to four months. Once the
initial design is complete, a prototype is developed, reviewed
and refined prior to commencement of production.
In order to reduce the impact of changes in fashion trends on
the Company's product sales and to increase the profitability of
the Company's products, the Company continuously seeks to develop
new core basic product styles that remain fashionable from season
to season without significant changes in design or styling.
Since these core basic products are seasonless, retailers'
inventories of core basic products tend to be maintained
throughout the year and reordered as necessary, primarily through
electronic data interchange.
Sourcing
The Company does not own or operate any manufacturing
facilities and sources its branded and private label products
directly or indirectly through independently owned manufacturers
in Italy, Spain, Brazil, India, China and Korea. The Company
maintains an office in Florence, Italy and generally has long-
standing relationships with several independent buying agents to
monitor the production, quality and timely distribution of the
Company's products from its manufacturers. The Company sources
each of its product lines separately based on the individual
design, styling and quality specifications of such products.
The Company attempts to limit the concentration of
manufacturing with any one manufacturer. However, approximately
40% and 58% of the dollar value of total handbag purchases by the
Company were sourced through one agent utilizing many different
factories in China in 2000 and 1999, respectively. In addition,
41% and 43% of men's footwear was produced by one manufacturer
utilizing several different factories in Italy in 2000 and 1999,
respectively. These manufacturers, however, subcontract a
significant portion of such purchases to ensure the consistent
and timely delivery of quality products. The Company is the
largest customer of these manufacturers and has established long-
standing relationships with them. While the Company believes it
has alternative manufacturing sources available to meet its
current and future production requirements, there can be no
assurance that, in the event the Company is required to change
its current manufacturers, alternative suppliers will be
available on terms comparable to the Company's existing
arrangements.
In advance of the Fall and Spring selling seasons, the Company
works with its manufacturers to develop product prototypes for
industry trade shows. During this process, the Company works with
the manufacturers to determine production costs, materials, break-
even quantities and component requirements for new styles. Based
on indications from the trade shows and initial purchasing
commitments from wholesalers, the Company places production
orders with the manufacturers. As a result of the need to
maintain in-stock inventory positions, the Company places
manufacturing orders for open stock and certain fashion products
prior to receiving firm commitments. Once an order has been
placed, the manufacturing and delivery time ranges from three
weeks to four months depending on whether it is currently in
production or a new product. Throughout the production process,
the Company monitors product quality through inspections at both
the factories and upon receipt at its warehouses. To reduce the
risk of overstocking, the Company monitors sell-through data on a
weekly basis and seeks input on product demand from wholesale
customers to adjust production when needed.
Advertising and Marketing
The Company believes that advertising to promote and enhance
the Kenneth Cole New York and Reaction Kenneth Cole brands is an
integral part of its long-term growth strategy. The Company
believes that its advertising campaigns, which have brought it
national recognition for their timely focus on current events and
social issues, have resulted in increased sales and consumer
awareness of its branded products. The Company's advertising
appears in magazines such as Vogue, Vanity Fair, Details, GQ,
Glamour and Marie Claire, newspapers, and outdoor and electronic
advertising media. All of the Company's licensees are required to
contribute to the Company a percentage of their net sales of
licensed products, subject to minimums, for the advertising and
promotion of the Kenneth Cole brand image. In addition, the
Company believes personal appearances by Kenneth D. Cole also
further enhance the Company's brand awareness.
The Company utilizes its in-house advertising and public
relations staff for all media placement, which includes approval
of all advertising campaigns from its licensees. By retaining
control over its advertising and marketing programs, the Company
has been able to maintain the integrity of its brands while
realizing substantial cost savings when compared to outsourcing.
The Company has committed additional funding towards the
marketing of the Unlisted brand. The marketing campaign,
beginning for the Fall 2001 season, will see the return of co-
branding, replacing Unlisted.com with "Unlisted, A Kenneth Cole
Production." The Company believes the campaign will further
distinguish the integrity of the brand, while maintaining the
Kenneth Cole association. The focus of this association is to
emphasize the Kenneth Cole lifestyle and appeal to the fashion
conscious younger consumer.
In order to continue to strengthen brand awareness of its
products and increase sales, the Company is actively involved in
development, marketing and merchandising programs for its
customers. As part of this effort, the Company utilizes
cooperative advertising programs, sales promotions and produces
consumer catalogs which feature a variety of Kenneth Cole New
York and Reaction Kenneth Cole branded products marketed by the
Company and its licensees. In addition, the Company has, on a
limited basis, worked with customers to develop distinctive
catalogs that market the Company's products and to develop point
of sale displays. Because all this work is done internally, the
Company believes that there is a singular focus, a strong synergy
and a consistency in all communications.
An important developing aspect of the Company's marketing
efforts is the creation of shop-in-shops, where an entire
collection of the Company's branded products is featured, along
with focus areas, where specific product categories are
highlighted. These shop-in-shops and focus areas create an
environment that is consistent with the Company's image and
enables the retailer to display and stock a greater volume of the
Company's products per square foot of retail space. In addition,
the Company believes that these shop-in-shops and focus areas
encourage longer-term commitment by retailers to the Company's
products and enhance consumer brand awareness.
Distribution
To facilitate distribution, the Company's products are
inspected, bar coded, packed and shipped from manufacturers by
ocean or air to either the Company's distribution facilities
located in Secaucus, New Jersey or a public warehouse located in
California. The Company utilizes fully integrated information
systems and bar code technology to facilitate the receipt,
processing and distribution of product through both distribution
facilities. The products are then shipped to the Company's
wholesale customers either in bulk or under its open stock
program. The Company's open stock program allows its wholesale
customers to reorder, typically via electronic data interchange
("EDI"), core basic styles in a range of colors and sizes for
immediate shipment. While the open stock program requires an
increased investment in inventories, the Company believes this
program is an important service for its wholesale customers by
allowing them to manage inventory levels more effectively. The
Company expects that affording customers improved flexibility in
ordering specific SKUs in smaller quantities will ultimately
reduce the incidence of markdowns and allowances.
Management Information Systems
The Company believes that sophisticated information systems are
essential to the Company's ability to maintain its competitive
position and to support continued growth. The Company's
management information systems were designed to provide, among
other things, comprehensive order processing, production,
accounting and management information for the sourcing,
importing, distribution and marketing aspects of the Company's
business. During 1999, the Company replaced its wholesale
distribution and financial systems with newer technologically
advanced systems that offer greater functionality and enhanced
reporting. The Company also utilizes an EDI system which
provides a computer link between the Company and many of its
wholesale customers that enables the Company to receive on-line
orders and to accumulate sales information on its products. The
Company's EDI system also improves the efficiency of responding
to customer needs and allows both the customer and the Company to
monitor purchases, shipments and invoicing. In its retail stores,
the Company uses point-of-sale registers to capture sales data
and track inventories.
The Company regularly evaluates the adequacy of its management
information systems and upgrades such systems to support its
growth. However, the Company's failure to continue to upgrade
its management information systems necessary to support growth or
expansion, which could arise either with its internal systems or
systems of its third parties, could have a material adverse
effect on the Company's financial condition and its results of
operations (see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Trademarks
The Company, through its wholly-owned subsidiary, K.C.P.L.,
Inc., owns federal registrations for its principal trademarks
Kenneth Cole, Kenneth Cole New York, Reaction Kenneth Cole,
Kenneth Cole Reaction, Reaction, Kenneth Cole Collection and
Unlisted as well as several other ancillary and derivative
trademarks. Each of the federal registrations is currently in
full force and effect and is not the subject of any legal
proceedings. In addition, the Company has several pending federal
applications in the United States Patent and Trademark office for
trademarks and service marks, including Unlisted, Unlisted.com
and several ancillary trademarks. Moreover, the Company
continues to expand its current international registrations in
numerous countries in Asia, Central and South America, the Middle
East and Europe. The Company regards its trademarks and other
proprietary rights as valuable assets in the marketing and
distribution of its products, and fully intends to maintain,
renew and protect the registrations, as well as vigorously defend
all trademarks against infringements.
Competition
Competition in the footwear and handbags industries is intense
and is subject to rapidly changing consumer demands. The Company
competes with numerous designers, brands and manufacturers of
footwear, handbags, apparel and accessories, some of which may be
larger, have achieved greater recognition for their brand names,
have captured greater market share and/or have substantially
greater financial, distribution, marketing and other resources
than the Company. The Company also competes for the limited
shelf-space available for the display of its products to the
consumer and the Company's licensed apparel and accessories also
compete with a substantial number of designer and non-designer
brands. Moreover, the general availability of contract
manufacturing capacity allows access by new market entrants. The
Company believes the success of its business depends on its
ability to stimulate and respond to changing consumer preferences
by producing innovative and attractive products, brands and
marketing, while remaining competitive in quality and price.
Foreign Operations
The Company's business is subject to the risks of doing
business abroad, such as fluctuations in currency exchange rates,
local market conditions, labor unrest, political instability and
the imposition of additional regulations relating to imports,
including quotas, duties or taxes and other charges on imports.
While these factors have not had a material adverse impact on the
Company's operations to date, there can be no assurance that they
will not have a material adverse affect on the Company's
operations in the future.
In order to reduce the risk of exchange rate fluctuations, the
Company routinely enters into forward exchange contracts to
protect the future purchase price of inventory denominated in
foreign currencies. These forward exchange contracts are used to
reduce the Company's exposure to changes in foreign exchange
rates and are not held for the purpose of trading or speculation
(see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations").
Import Restrictions
Although the majority of the goods sourced by the Company are
not currently subject to quotas, countries in which the Company's
products are manufactured may, from time to time, impose new or
adjust prevailing quotas or other restrictions on exported
products. In addition, the United States may impose new duties,
tariffs and other restrictions on imported products, any of which
could have a material adverse affect on the Company's operations
and its ability to import its products at the Company's current
or increased quantity levels. In accordance with the Harmonized
Tariff Schedule, a fixed duty structure in effect for the United
States, the Company pays import duties on its products ranging
from approximately 6% to 37.5%, depending on the product category
and the principal component of the product. Other restrictions on
the importation of footwear and other products are periodically
considered by the United States government and no assurance can
be given that tariffs or duties on the Company's goods may not be
raised, resulting in higher costs to the Company, or that import
quotas restricting such goods may not be imposed or made more
restrictive.
A significant portion of the Company's products is manufactured
in and imported from China. The Company's operations and its
ability to import products from China at current tariff levels
could be materially and adversely affected if the ''most favored
nation'' status granted to China by the United States government
for trade and tariff purposes is terminated. As a result of such
status, products imported by the Company from China currently
receive the lower tariff rates made available to most of the
United States' major trading partners. In 2000, the U.S. enacted
a bill granting China "permanent normal trade relations" status
which will take effect upon China joining the World Trade
Organization ("WTO"). In the event that China does not join the
WTO or if for some other reason China's trade status were to
change, tariff levels on imports from China could rise
significantly, which could have a material adverse effect on the
Company's results of operations. However, the Company believes
that it would be able to shift production of certain goods to
other countries on a cost effective basis and to continue to
produce in China those goods subject to lower tariff rates.
Seasonality
The Company's products are marketed primarily for Fall and
Spring seasons, with slightly higher volume of wholesale products
sold during the first and third quarters. The Company's retail
business follows the general seasonal trends that are
characteristic within the retail industry: sales and earnings are
highest in the fourth quarter and weakest in the first quarter.
Because the timing of wholesale shipments of products for any
season may vary from year to year, the results for any one
quarter may not be indicative of the results for the full year.
Customers
The Company's department store customers include major United
States retailers, certain of which are under common ownership.
In 2000 and 1999, the Company had no customer or group under
common ownership account for more than 10% of sales. The
Company's ten largest customers represented 43.7% and 40.1% of
the Company's net sales for the years ended December 31, 2000 and
1999, respectively. While the Company believes that purchasing
decisions have generally been made independently by each division
within a department store group, there is a trend among
department store groups toward centralized purchasing decisions
of their divisions.
Backlog
The Company had unfilled wholesale customer orders of $55.8
million and $58.6 million, at February 24, 2001 and February 26,
2000, respectively. The Company's backlog at a particular time is
affected by a number of factors, including seasonality, timing of
market weeks, and wholesale customer purchases of its core basic
products through the Company's open stock program. Accordingly, a
comparison of backlog from period to period may not be indicative
of eventual shipments.
Employees
At December 31, 2000, the Company had approximately 1800
employees, 220 of whom are covered under a collective bargaining
agreement with a local affiliate of the International Leather
Goods, Plastics, Handbags and Novelty Workers' Union, Local 1,
Division of Local 342-50 United Food and Commercial Workers
Union. The Company considers its relationships with its employees
to be satisfactory. The collective bargaining agreement expires
in April 2004. While the Company believes it will be able to
renew the agreement with similar terms and conditions, there can
be no assurance a new agreement will be reached and failure to
reach a new collective bargaining agreement could have a material
effect on the Company.
Directors and Executive Officers
Name Age Present Position
Kenneth D. Cole 47 President and Chief Executive Officer
Paul Blum 41 Executive Vice President and Chief Operating Officer
Stanley A. Mayer 53 Executive Vice President and Chief Financial Officer
Jaryn Bloom 36 Senior Vice President-Consumer Direct
Susan Hudson 41 Senior Vice President-Wholesale
Robert Grayson 56 Director
Denis F. Kelly 51 Director
Philip B. Miller 63 Director
Kenneth D. Cole has served as the Company's President, Chief
Executive Officer and a Director since its inception in 1982. Mr.
Cole was a founder, and from 1976 through 1982, a senior
executive of El Greco, Inc., a shoe manufacturing and design
company which manufactured Candie's women's shoes. Mr. Cole is on
the Boards of Directors of the American Foundation for AIDS
Research (''AmFAR'') and H.E.L.P., a New York agency that
provides temporary housing for the homeless. In addition, Mr.
Cole is a Director and President of each of the wholly owned
subsidiaries of the Company.
Paul Blum has served as Chief Operating Officer and a Director
since February 1998. Prior he served as Executive Vice President
of the Company since May 1996 and as Senior Vice President from
August 1992 until May 1996. Mr. Blum joined the Company in 1990.
From 1982 until 1990, Mr. Blum served as Vice President and was a
principal shareholder of The Blum Co., a fashion accessory firm,
the assets of which were purchased in 1990 by the Company.
Stanley A. Mayer has served as Executive Vice President, Chief
Financial Officer, Treasurer, Secretary and a Director of the
Company since March 1988. From 1986 until joining the Company,
Mr. Mayer held the position of Vice President-Finance and
Administration of Swatch Watch USA, Inc. Mr. Mayer was the
Controller of the Ralph Lauren and Karl Lagerfeld womenswear
divisions of Bidermann Industries, USA, Inc. from 1979 until
1986. In addition, Mr. Mayer is an officer of each of the wholly
owned subsidiaries of the Company.
Jaryn Bloom has served as Senior Vice President of Consumer
Direct since September 1997. Prior, she served as Divisional
President-Retail and in various roles with increasing
responsibility since joining the Company in 1986.
Susan Q. Hudson has served as Senior Vice President -
Wholesale since February 1998. Prior, Ms. Hudson served as
Divisional President - Men's Footwear since 1996 and as Vice
President in charge of men's footwear since 1990. Prior to
joining the Company, Ms. Hudson was at LA Gear, where she served
as Regional Sales Manager.
Robert C. Grayson is President of Robert C. Grayson &
Associates, Inc. and Vice Chairman of Berglass-Grayson,
consulting firms. From 1992 to 1996, Mr. Grayson served
initially as an outside consultant to Tommy Hilfiger Corp., a
wholesaler and retailer of men's sportswear and boyswear, and
later accepted titles of Chairman of Tommy Hilfiger Retail, Inc.
and Vice Chairman of Tommy Hilfiger Corp. From 1970 to 1992, Mr.
Grayson served in various capacities for Limited Inc., including
President and CEO of Lerner New York from 1985 to 1992, and
President and CEO of Limited Stores from 1982 to 1985.
Denis F. Kelly is a Financial Consultant. From July 1993 to
December 2000, Mr. Kelly was the head of the Mergers and
Acquisitions Department at Prudential Securities Incorporated.
From 1991 to 1993, Mr. Kelly was President of Denbrook Capital
Corp., a merchant-banking firm. Mr. Kelly was at Merrill Lynch
from 1980 to 1991, where he served as Managing Director, Mergers
& Acquisitions from 1984 to 1986, and then as a Managing
Director, Merchant Banking, from 1986 to 1991. Mr. Kelly is a
director of MSC Industrial Direct, Inc.
Philip B. Miller was appointed to serve on the Company's Board
of Directors on March 23, 2000. Mr. Miller is Chairman of Saks
Fifth Avenue, an upscale specialty retailer, and serves as Co-
Chairman of Saks Direct, a subsidiary comprising e-commerce and
direct mail businesses. Mr. Miller served as Chairman and Chief
Executive Officer at Saks Fifth Avenue from 1993 to January 2000.
Mr. Miller was formerly Chairman and Chief Executive Officer at
Marshall Fields, joining that company in 1983 from Neiman Marcus,
where he had been President since 1977. Mr. Miller serves as
Senior Vice Chairman of the Board of Directors of Lighthouse
International and also serves on the Board of Directors of Saks
Incorporated, the Metropolitan Opera Guild of New York and the
New York Botanical Gardens.
Item 2. Properties
During 2000, the Company relocated its executive offices and
showrooms from 152 West 57th Street, New York, NY to 603 West
50th Street, New York, NY. The 15-year lease that expires on May
31, 2015 gives the Company approximately 126,000 square feet of
office space over the next three years allowing it to consolidate
various satellite office spaces into a worldwide corporate
headquarters. The Company currently occupies approximately
66,000 square feet. The lease for the former executive offices
and showrooms, expires in December 2006 and is currently under a
subtenant lease agreement on terms favorable to the Company.
The Company's administrative offices and distribution
facilities are located in Secaucus, New Jersey under leases that
expire in June 2002. The main facility comprises 244,000 square
feet, of which approximately 30,000 square feet is used for
administrative offices. In March 2000, the Company leased an
additional 77,000 square feet to expand its current distribution
capacity. The lease expires simultaneously with the other
distribution facility located in Secaucus, New Jersey. In
addition to these two leases, the Company also leases a 23,500
square foot facility in Secaucus used for outlet store space as
well as an additional distribution warehousing facility. The
Company also utilizes a public warehouse on the west coast and
has a technical and administrative office in Florence, Italy.
The Company does not own or operate any manufacturing facilities.
The Company leases space for all of its 45 full price retail
stores (aggregating approximately 170,000 square feet) and 24
outlet stores (aggregating approximately 90,000 square feet).
Generally, the leases provide for an initial term of five to ten
years, with renewal options permitting the Company to extend the
term thereafter.
Item 3. Legal Proceedings
The Company is, from time to time, a party to litigation that
arises in the normal course of its business operations. The
Company is not presently a party to any such litigation that it
believes would have a material adverse effect on its business or
operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
The Company's Class A Common Stock is listed and traded
(trading symbol KCP) on the New York Stock Exchange ("NYSE"). On
March 27, 2001 the closing sale price for the Class A Common
Stock was $25.25. The following table sets forth the high and low
sale prices for the Class A Common Stock for each quarterly
period for 1999 and 2000 (adjusted to give effect to the
Company's three-for-two Common Stock split on March 6, 2000), as
reported on the NYSE Composite Tape:
1999: High Low
First Quarter 17.58 12.21
Second Quarter 22.67 17.33
Third Quarter 25.29 18.58
Fourth Quarter 33.00 23.71
2000: High Low
First Quarter 40.88 22.08
Second Quarter 45.63 33.25
Third Quarter 48.19 34.94
Fourth Quarter 48.00 34.63
The number of shareholders of record of the Class A Common
Stock on March 27, 2001 was 58.
There are four holders of record of the Company's Class B
Common Stock on March 27, 2001.
On February 23, 2000, The Board of Directors declared a three-
for-two stock split to be effected in the form of a stock
dividend. As a result of an insufficient number of additional
authorized shares of Class B Common Stock required to be issued
in order to effectuate the Company's three-for-two stock split,
on March 6, 2000 the holders of record of Class B Common Stock
were issued 28,927 shares of Series A Convertible Preferred stock
in lieu of shares of Class B Common Stock. Each share of Series
A Convertible Preferred stock is automatically convertible into
100 shares of Class B Common Stock upon the due authorization of
a sufficient number of Class B Common stock to permit such
conversion. Accordingly, on May 25, 2000, the Board of Directors
approved a resolution to increase the number of shares of Class B
Common stock from 6.0 million to 9.0 million to permit the
conversion, thereby providing the holders of Series A Convertible
Preferred stock with the shares of Class B Common Stock that
should have been issued to them pursuant to the stock split. As
a result, all 28,927 shares of Series A Convertible Preferred
Stock were converted into 2,892,699 shares of Class B Common
Stock. There is no established public trading market for the
Company's Series A Convertible Preferred Stock or Class B Common
Stock.
On August 13, 1999 the Board of Directors of the Company
authorized management to repurchase, from time to time, an
additional 1,500,000 shares up to an aggregate 2,250,000 shares
of the Company's Class A Common Stock. As of December 31, 2000,
1,506,700 shares were repurchased in the open market at an
aggregate price of $34,771,000 which have been recorded as
treasury stock. During 2001, an additional 2,000,000 shares of
Class A Common Stock were authorized to be repurchased.
Subsequent to December 31, 2000, 607,000 shares of Class A Common
Stock were repurchased.
Dividend Policy
The Company intends to retain its earnings to finance the
development, expansion and growth of its existing business.
Accordingly, the Company does not anticipate paying cash
dividends on its Class A Common Stock in the foreseeable future.
The payment of any future dividends will be at the discretion of
the Company's Board of Directors and will depend upon, among
other things, future earnings, operations, capital requirements,
the financial condition of the Company and general business
conditions.
Item 6. Selected Financial Data
The following selected financial data has been derived from the
consolidated financial statements of the Company and should be
read in conjunction with the consolidated financial statements
and notes thereto that appear elsewhere in this Annual Report and
in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth in Item 7. All earnings per
share and shares outstanding amounts have been adjusted to give
effect to the Company's three-for-two Common Stock split on March
6, 2000.
Year Ended December 31,
2000 1999 1998 1997 1996
(dollars in thousands, except share data)
Income Statement Data:
Net sales $384,713 $296,473 $220,405 $185,278 $148,258
Licensing revenue 21,619 14,955 8,357 6,028 3,575
Net revenue 406,332 311,428 228,762 191,306 151,833
Cost of goods sold 217,046 169,976 130,027 112,183 86,919
Gross profit 189,286 141,452 98,735 79,123 64,914
Selling and general administrative
expenses (1)(2) 128,532 100,836 72,145 58,330 44,354
Operating income 60,754 40,616 26,590 20,793 20,560
Interest income (expense), net 3,228 1,280 404 (202) (22)
Income before provision for
income taxes 63,982 41,896 26,994 20,591 20,538
Provision for income taxes 25,592 16,968 10,663 8,189 8,251
Net income 38,390 24,928 16,331 12,402 12,287
Earnings per share:
Basic $1.87 $1.24 $.82 $.63 $.62
Diluted $1.75 $1.18 $.80 $.61 $.60
Weighted average shares outstanding:
Basic 20,574,000 20,102,000 19,833,000 19,743,000 19,664,000
Diluted 21,892,000 21,059,000 20,456,000 20,408,000 20,367,000
At December 31,
2000 1999 1998 1997 1996
Balance Sheet Data:
Working capital $103,768 $106,057 $ 56,644 $ 46,949 $ 37,023
Cash 74,608 71,415 13,824 8,803 1,626
Inventory 42,361 39,553 32,957 23,365 29,265
Total assets 212,370 176,859 96,680 77,528 65,255
Total debt, including
current maturities 576 758 927 0 489
Total shareholders' equity 145,636 125,331 73,689 59,740 46,599
(1) Includes shipping and warehousing expenses.
(2) Includes impairment loss of $547,000 in 1999.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and the
notes thereto that appear elsewhere in this Annual Report.
Results of Operations
The following table sets forth certain operating data of the
Company as a percentage of net revenues for the periods indicated
below:
Year Ended December 31,
2000 1999 1998
Net sales 94.7% 95.2% 96.3%
Licensing revenue 5.3 4.8 3.7
------ ------ ------
Net revenues 100.0 100.0 100.0
Cost of goods sold 53.4 54.6 56.8
------ ------ ------
Gross profit 46.6 45.4 43.2
Selling, general and administrative expenses 31.6 32.4 31.6
Operating income 15.0 13.0 11.6
Income before provision for income taxes 15.7 13.4 11.8
Provision for income taxes 6.3 5.4 4.7
------ ------ ------
Net income 9.4% 8.0% 7.1%
====== ====== ======
Year Ended December 31,2000 Compared to Year Ended December
31,1999
Net revenues increased to $406.3 million in 2000 compared to
$311.4 million in 1999, an increase of 30.5%. This increase is
due to increases in each of the Company's business segments:
wholesale, consumer direct and licensing/international.
Wholesale net sales (excluding sales to its consumer direct
business segment) increased $49.8 million or 26.7 % to $236.5
million in 2000 from $186.7 million in 1999. This increase is
primarily attributable to an increase in sales of men's and
ladies Kenneth Cole New York and Reaction Kenneth Cole branded
footwear and handbags, offset slightly by Unlisted footwear
sales. The overall increase is due to increased sales to new and
existing customers due to increased brand awareness and continued
growing consumer demand of Kenneth Cole New York as a premier
lifestyle brand. The Company believes its advertising campaigns,
marketing efforts, website, catalogs and growing retail presence,
combined with the marketing efforts of its licensees, continue to
be significant factors in increasing consumer demand and the
strengthening of its three distinct brands, Kenneth Cole New
York, Reaction Kenneth Cole and Unlisted across all product
classifications.
Net sales in the Company's Consumer Direct segment increased
$38.4 million or 35.0% to $148.2 million in 2000 from $109.8
million in 1999. The increase in the number of stores, as well
as a comparable stores sales increase of approximately 11.3%
contributed to the increase in net sales. Of the total increase,
$11.1 million was attributable to the comparable store sales
increase, and $25.6 million was attributable to that portion of
2000 sales for stores not open for all of 1999 and new stores in
2000. The Company believes that the retail stores convey the
Company's image and seamlessly showcase both Company and licensee
products, and that this comprehensive presentation reinforces the
lifestyle brand, thus increasing consumer demand, not only in the
retail stores but also across all channels of distribution. The
Company's catalog and internet sales increased $1.9 million in
2000 over the comparable period in 1999.
Licensing revenue increased 44.6% to $21.6 million in 2000 from
$15.0 million in 1999. The increase primarily reflects
incremental revenues from sales from existing licensees and the
launch of womenswear during the Fall 2000 season. The most
significant increases, however, were in men's apparel product
classifications including dress shirts, sportswear and tailored
clothing, and in men's and women's watches. The Company believes
its men's apparel and the recent debut into women's sportswear
comes at an opportune time as consumers look toward brands they
know and feel comfortable with as a lifestyle. The Company
believes the synergies from its efforts to reinforce its brand
identities through greater marketing efforts, by itself and its
licensees across all product categories, will continue to propel
licensee sales.
Gross profit as a percentage of net revenues increased to 46.6%
in 2000 from 45.4% in 1999. This increase is due to an increase
in the proportion of revenue from the retail and licensing
divisions, each of which produces higher margins than the
Company's consolidated gross profit percentage. Sales from the
Consumer Direct segment were 36.5% of consolidated net revenue in
2000 compared with 35.3% in 1999. Licensing revenue, which has
no associated cost of goods sold, increased as a percentage of
net revenues to 5.3% in 2000 from 4.8% in 1999. The Company's
wholesale gross profit increased across men's and ladies Kenneth
Cole New York and Reaction Kenneth Cole footwear and handbags
which experienced an improvement in its sell through at retail.
Selling, general and administrative expenses, including
shipping and warehousing, increased 27.5% to $128.5 million (or
31.6% of net revenues) in 2000 from $100.8 million (or 32.4% of
net revenues) in 1999. The increase was primarily attributable
to investment in organizational infrastructure to support growth,
including cost incurred to relocate the Company's offices and
adding an additional warehouse facility, hiring of personnel, e-
commerce support and the expansion of the Company's Consumer
Direct operations. The decrease in SG&A as a percentage of net
revenue is primarily attributable to certain economies realized
in the Company's wholesale segment, slightly offset by increased
expenditures in technology aimed at enhancing the Company's e-
commerce initiatives.
Interest and other income increased to $3.2 million in 2000
from $1.3 million in 1999. The increase is primarily due to
higher average cash levels due to improved cash flows and the
receipt of $29.0 million in proceeds from selling stock to Liz
Claiborne, Inc. as part of the womenswear licensing agreement in
the later half of 1999.
The Company's effective tax rate decreased to 40.0% for the
year ended December 31, 2000 from 40.5% in the corresponding
period last year. The decrease is due to the relative level of
earnings in the various state and local taxing jurisdictions to
which the Company's earnings are subject.
As a result of the foregoing, operating income increased 49.6%
in 2000 to $60.8 million (15.0% of net revenue) from $40.6
million (13.0% of net revenue) in 1999.
Year Ended December 31,1999 Compared to Year Ended December
31,1998
Net revenues increased to $311.4 million in 1999 compared to
$228.8 million in 1998, an increase of 36.1%. This increase is
due to increases in each of the Company's business segments:
wholesale, consumer direct and licensing.
Wholesale net sales (excluding sales to its consumer direct
business segment) increased $34.6 million or 22.8% to $186.7
million in 1999 from $152.0 million in 1998. This increase is
primarily attributable to an increase in sales of men's and
ladies branded footwear. The overall increase is due to
increased sales to new and existing customers due to increased
brand awareness and continued growing consumer demand of Kenneth
Cole New York as a premier lifestyle brand. The Company believes
its advertising campaigns, marketing efforts, website, catalogs
and growing retail presence, combined with the marketing efforts
of its licensees, continue to be significant factors in
increasing consumer demand and the strengthening of its three
distinct brands, Kenneth Cole New York, Reaction Kenneth Cole and
Unlisted across all product classifications.
Net sales in the Company's Consumer Direct segment increased
$41.4 million or 60.6% to $109.8 million in 1999 from $68.4
million in 1998. The increase in the number of stores, as well
as a comparable stores sales increase of approximately 20%
contributed to the increase in net sales. Of the total increase,
$12.4 million was attributable to the comparable store sales
increase, and $29.0 million was attributable to that portion of
1999 sales of stores not open for all of 1998 and new stores in
1999. The Company believes that the retail stores convey the
Company's image and seamlessly showcase both Company and licensee
products, and that this comprehensive presentation reinforces the
lifestyle brand, thus increasing consumer demand, not only in the
retail stores but also across all channels of distribution.
Licensing revenue increased 79.0% to $15.0 million in 1999 from
$8.4 million in 1998. The increase reflects incremental revenues
from sales from existing licensees. The most significant
increases, however, were due to the roll out of recently
introduced men's apparel product classifications including dress
shirts, sportswear and tailored clothing. The Company believes
its recent entry into men's apparel and the upcoming highly
anticipated debut into women's sportswear comes at an opportune
time as consumers look toward brands they know and feel
comfortable with. The Company believes the synergies from its
efforts to reinforce its brand identities through greater
marketing efforts, by itself and its licensees across all product
categories, will continue to propel licensee sales.
Gross profit as a percentage of net revenues increased to 45.4%
in 1999 from 43.2% in 1998. This increase is due to an increase
in the proportion of revenue from the retail and licensing
divisions, each of which produces higher margins than the
Company's consolidated gross profit percentage. Sales from the
Consumer Direct segment were 35.3% of consolidated net revenue in
1999 compared with 29.9% in 1998. Licensing revenue, which has
no associated cost of goods sold, increased as a percentage of
net revenues to 4.8% in 1999 from 3.7% in 1998. The Company's
wholesale gross profit increased across all brands in men's
footwear, handbags and ladies footwear which also experienced an
improvement in its sell through at retail.
Selling, general and administrative expenses, including
shipping and warehousing, increased 39.8% to $100.8 million (or
32.4% of net revenues) in 1999 from $72.1 million (or 31.6% of
net revenues) in 1998. The increase was primarily attributable
to investment in organizational infrastructure to support growth,
marketing and public relations expenditures to build the
Company's brands, hiring of personnel and the expansion of the
Company's Consumer Direct operations. Included in SG&A expenses
in 1999 was approximately $3.0 million, or 1% of sales, in
internet and year 2000 related costs. The increase in SG&A as a
percentage of net revenue is due to the increased level of
spending on the internet and information systems and expansion of
the Company's retail and outlet stores, which operate at a higher
cost structure than its wholesale operations.
Interest income increased to $1.3 million in 1999 from $0.4
million in 1998. The increase was primarily due to higher
average cash levels due to improved cash flows and the receipt of
$29.0 million in proceeds from selling stock to Liz Claiborne
Inc. as part of the womenswear licensing agreement.
As a result of the foregoing, operating income increased 52.7%
in 1999 to $40.6 million (13.0% of net revenue) from $26.6
million (11.6% of net revenue) in 1998.
Liquidity and Capital Resources
The Company's cash requirements are generated primarily from
working capital needs, retail expansion, enhanced technology and
e-commerce initiatives, and other corporate activities. The
Company primarily relies upon internally generated cash flows
from operations to finance its operations and growth, however it
also has the ability to borrow up to $25.0 million under its line
of credit facility. Cash flows may vary from time to time as a
result of seasonal requirements of inventory, the timing of the
delivery of merchandise to customers and the level of accounts
receivable and payable balances. At December 31, 2000, working
capital was $103.8 million compared to $106.1 million at December
31, 1999.
Net cash provided by operating activities increased to $51.4
million in 2000 from $40.3 million in 1999. This increase was
primarily attributable to higher earnings, timing of payables and
receivables, offset by increased inventory levels required to
support the initial inventory requirements of the new retail and
outlet stores and deposits to execute larger format retail store
spaces.
Net cash used in investing activities was $25.5 million in
2000 compared to $8.5 million in 1999. This increase primarily
reflects an increase in capital expenditures for new retail store
openings and the renovation of the Company's new corporate
headquarters in New York City.
Net cash used in financing activities was $22.9 million in 2000
compared to net cash provided by financing activities of $25.6
million in 1999. This is principally attributable to the
Company's purchase of 782,950 shares of Class A Common Stock at
an average price of $32.46 per share compared to 723,750 shares
of Class A Common Stock purchased during 1999 at an average price
of $12.95 per share under its stock repurchase program. In
February 2001, the Board of Directors authorized the repurchase
from time to time, subject to market conditions, of an additional
2 million shares of Class A Common Stock under the Company's
repurchase program. In addition, during 1999 the Company issued
1,500,000 shares of Class A Common Stock to Liz Claiborne, Inc.
at the market price of $19.33 per share in conjunction with the
signing of the license agreement for womenswear.
The Company currently sells substantially all of its account
receivables to one factor without recourse. In circumstances
where a customer's account cannot be factored without recourse,
the Company may take other measures to reduce its credit exposure
which could include requiring the customer to pay in advance or
to provide a letter of credit covering the sales price of the
merchandise ordered.
The Company currently has a line of credit, as amended, under
which up to $25.0 million is available to finance working capital
requirements and letters of credit to finance the Company's
inventory purchases. Borrowings available under the line of
credit are determined by a specified percentage of eligible
accounts receivable and inventories and bear interest at (i) the
higher of The Bank of New York's prime lending rate or the
Federal Funds rate plus 0.5% at the date of borrowing or (ii) a
negotiated rate. In connection with the line of credit, the
Company has agreed to eliminate all the outstanding borrowings
under the facility for at least 30 consecutive days during each
calendar year. In addition, borrowings under the line of credit
are secured by certain receivables of the Company. The Company
has no outstanding advances under this line of credit, however
amounts available under the line were reduced by $2.1 million
open letters of credit and $2.4 million standby letters of credit
to $20.5 million.
Capital expenditures were approximately $24.1 million, $8.5
million and $5.8 million for 2000, 1999 and 1998, respectively.
Expenditures on furniture, fixtures and leasehold improvements
for new retail store openings and expansions were $10.2 million,
$6.7 million and $4.9 million in 2000, 1999 and 1998,
respectively. The remaining expenditures were primarily for
leasehold improvements for the renovation of the Company's new
corporate headquarters, and equipment for the company's offices
and warehouses. During 2001, the Company anticipates opening or
expanding approximately 7 to 12 retail and outlet stores that
will require aggregate capital expenditures and initial inventory
requirements of these new and expanded stores of approximately
15.0 million.
The Company also anticipates that it will require increased
capital expenditures to support its continued growth including an
increase in its office and warehouse space and enhancements to
its information systems and website development.
In December 1998, the Company entered into a 15-year lease
which, over a period of three to five years, will provide the
Company with approximately 126,000 square feet of office space.
During 2000, the Company relocated its corporate headquarters to
this larger location in New York City and anticipates
consolidating various satellite office space. The Company
completed phase I of its renovations incurring approximately $10
million in capital expenditures. Currently, the Company expects
to incur an additional $10 million over the next two to three
years upon turnover of the additional remaining space.
The Company believes that it will be able to satisfy its cash
requirements for 2001, including requirements for its retail
expansion, new corporate office space and information systems
improvements, primarily with cash flow from operations.
Exchange Rates
The Company routinely enters into forward exchange contracts
for its future purchases of inventory denominated in foreign
currencies, primarily the Italian Lira. At December 31, 2000,
forward exchange contracts totaling $16.0 million were
outstanding with settlement dates ranging from January 2001
through May 2001. Gains and losses on forward exchange contracts
are deferred and accounted for as part of the purchase price of
imported merchandise. At December 31, 2000, the unrealized gain
on these forward contracts is approximately $1.1. The Company
expects to continue to routinely enter into additional foreign
exchange contracts throughout the year. While the Company
believes that its current procedures with respect to the
reduction of risk associated with currency exchange rate
fluctuations are adequate, there can be no assurance that such
fluctuations will not have a material adverse effect on the
results of operations of the Company in the future.
On January 1, 1999, the Euro became the official single
currency of the European Economic and Monetary Union. As of this
date, the conversion rates of the national currencies of the
union members were fixed irrevocably. During the transition
period between January 1999 and January 2002, parties may pay for
goods using either the Euro or the national currency. The
Company believes conversion to the Euro will not have a material
effect on the Company's financial condition or results of
operation.
Inventory purchases from contract manufacturers in the Far
East and Brazil are denominated in United States dollars and the
recent devaluation of many of these currencies against the United
States dollar has not had any material adverse impact on the
Company. However, future purchase prices for the Company's
products may be impacted by fluctuations in the exchange rate
between the United States dollar and the local currencies of the
contract manufacturer, which may affect the Company's cost of
goods in the future. The Company does not believe the potential
effects of such fluctuations would have a material adverse affect
on the Company.
Effects of Inflation
The Company does not believe that the relatively moderate rates
of inflation experienced over the last few years in the United
States, where it primarily competes, have had a significant
effect on revenues or profitability.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
The Company does not believe it has a material exposure to
market risk. The Company is primarily exposed to currency
exchange rate risks with respect to its inventory transactions
denominated in Italian Lira, which has been converted to the Euro
effective January 1, 1999. Business activities in various
currencies expose the company to the risk that the eventual net
dollar cash flows from transactions with foreign suppliers
denominated in foreign currencies may be adversely affected by
changes in currency rates. The Company manages these risks by
utilizing foreign exchange contracts. The Company does not enter
into foreign currency transactions for speculative purposes. At
December 31, 2000, the Company had forward exchange contracts
totaling $16.0 million with an unrealized gain of approximately
$1.1. The Company's earnings may also be affected by changes in
short-term interest rates as a result of borrowings under its
line of credit facility. A two or less percentage point increase
in interest rates affecting the Company's credit facility would
not have had a material effect on the Company's 2000 and 1999 net
income.
Item 8. Financial Statements and Supplementary Data
See page F-1 for a listing of the consolidated financial
statements submitted as part of this report.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Except for the information regarding directors and executive
officers of the registrant, which is included in Part I, the
information required by this item will be contained in the
Company's Proxy Statement for its Annual Shareholders Meeting to
be held May 24, 2001 to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2000 and is
incorporated herein by reference in response to this item.
Item 11. Executive Compensation
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Shareholders Meeting to
be held May 24, 2001 to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2000 and is
incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Shareholders Meeting to
be held May 24, 2001 to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2000 and is
incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be contained in the
Company's Proxy Statement for its Annual Shareholders Meeting to
be held May 24, 2001 to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2000, and is
incorporated herein by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) See page F-1 for a listing of consolidated financial
statements submitted as part of this report.
(a) (2) Schedule II - Valuation and Qualifying Accounts
All other schedules, for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions, are shown in the financial statements or are
inapplicable and therefore have been omitted.
(a) (3) The following exhibits are included in this report.
Exhibit
No.
Description
3.01 -Restated Certificate of Incorporation of Kenneth
Cole Productions, Inc.; Certificate of Merger of Cole Fifth
Avenue, Inc. into Kenneth Cole Productions, Inc.;
Certificate of Merger of Cole Productions, Inc. into
Kenneth Cole Productions, Inc.; Certificate of Merger of
Cole Sunset, Inc. into Kenneth Cole Productions, Inc.;
Certificate of Merger of Cole Union Street, Inc. into
Kenneth Cole Productions, Inc.; Certificate of Merger of
Cole West, Inc. into Kenneth Cole Productions, Inc.;
Certificate of Merger of Kenneth Cole Woodbury, Inc. into
Kenneth Cole Productions, Inc.; Certificate of Merger of
Kenneth Cole Leather Goods, Inc. into Kenneth Cole
Productions, Inc.; Certificate of Merger of Unlisted into
Kenneth Cole Productions, Inc. (Incorporated by reference
to Exhibit 3.01 to the Company's Registration Statement on
Form S-1, Registration No. 33-77636).
3.02 -By-laws. (Incorporated by reference to Exhibit
3.02 to the Company's Registration Statement on Form S-1,
Registration No. 33-77636).
4.01 -Specimen of Class A Common Stock Certificate.
(Incorporated by reference to Exhibit 4.01 to the Company's
Registration Statement on Form S-1, Registration No. 33-
77636).
10.01 -Tax Matters Agreement, dated as of June 1, 1994,
among Kenneth Cole Productions, Inc., Kenneth D. Cole, Paul
Blum and Stanley A. Mayer. (Incorporated by reference to
Exhibit 10.01 to the Company's Registration Statement on
Form S-1, Registration No. 33-77636).
10.02 -Term Loan Agreement, dated as of May 26, 1994, by and
among Kenneth Cole Productions, Inc., Kenneth Cole Leather
Goods, Inc., Unlisted, Inc., Cole West, Inc., Kenneth Cole
Financial Services, Inc., Kenneth Cole Woodbury, Inc., Cole
Fifth Avenue, Inc., Cole Union Street, Inc. and The Bank of
New York; Promissory Notes, dated May 26, 1994, issued by
each of Kenneth Cole Leather Goods, Inc., Unlisted, Inc.,
Cole West, Inc., Kenneth Cole Financial Services, Inc.,
Kenneth Cole Woodbury, Inc., Cole Fifth Avenue, Inc., Cole
Union Street, Inc. to The Bank of New York; Shareholder
Guaranty by and between Kenneth D. Cole and The Bank of New
York, dated as of May 26, 1994; Subordination Agreement by
and among Kenneth D. Cole, Kenneth Cole Productions, Inc.,
Kenneth Cole Leather Goods, Inc., Unlisted, Inc., Cole
West, Inc., Kenneth Cole Financial Services, Inc., Kenneth
Cole Woodbury, Inc., Cole Fifth Avenue, Inc., Cole Union
Street, Inc. and The Bank of New York, dated as of April
13, 1994; Reinvestment Agreement by and among Kenneth D.
Cole, Kenneth Cole Productions, Inc., Unlisted, Inc., Cole
West, Inc., Kenneth Cole Financial Services, Inc., Kenneth
Cole Woodbury, Inc., Cole Fifth Avenue, Inc., Cole Union
Street, Inc. and The Bank of New York, dated as of May 26,
1994; Amendment No. 1 to the Term Loan Agreement and the
Reinvestment Agreement by and among Kenneth D. Cole,
Kenneth Cole Productions, Inc., Cole West, Inc., Kenneth
Cole Woodbury, Inc., Cole Fifth Avenue, Inc., Cole Union
Street, Inc., Kenneth Cole Financial Services, Inc. and The
Bank of New York, dated as of May 31, 1994. (Incorporated
by reference to Exhibit 10.02 to the Company's Registration
Statement on Form S-1, Registration No. 33-77636).
10.03-Line of Credit Letter, dated January 13, 1994, from The
Bank of New York to Kenneth Cole Productions, Inc., Kenneth
Cole Leather Goods, Inc. and Unlisted, Inc.; $7,500,000
Promissory Note, dated February 1, 1994 by Kenneth Cole
Productions, Inc., Kenneth Cole Leather Goods, Inc. and
Unlisted, Inc. issued to The Bank of New York; Letter
Agreement, dated December 16, 1993, between The Bank of New
York and Kenneth Cole Productions, Inc., Unlisted, Inc.,
Kenneth Cole Leather Goods, Inc., Cole Productions, Inc.,
Cole West, Inc., Kenneth Cole Financial Services, Inc.,
Cole Woodbury, Inc., Cole Sunset, Inc. and Cole Fifth
Avenue, Inc.; General Guarantees, dated December 16, 1993,
in favor of The Bank of New York by Kenneth Cole Leather
Goods, Inc. for Unlisted, Inc., by Kenneth Cole Leather
Goods, Inc. for Kenneth Cole Productions, Inc., by
Unlisted, Inc. for Kenneth Cole Productions, Inc., by
Unlisted, Inc. for Kenneth Cole Leather Goods, Inc., by
Kenneth Cole Productions, Inc. for Kenneth Cole Leather
Goods, Inc., and by Kenneth Cole Productions, Inc. for
Unlisted, Inc.; General Loan and Security Agreements, dated
December 16, 1993, between The Bank of New York and each of
Kenneth Cole Productions, Inc., Kenneth Cole Leather Goods,
Inc. and Unlisted, Inc.; and Personal Guarantees of Mr.
Kenneth D. Cole, dated December 16, 1993, in favor of The
Bank of New York for Kenneth Cole Productions, Inc.,
Unlisted, Inc. and Kenneth Cole Leather Goods, Inc.
(Incorporated by reference to Exhibit 10.03 to the
Company's Registration Statement on Form S-1, Registration
No. 33-77636).
Line of Credit Letter, dated December 9, 1994
from The Bank of New York to Kenneth Cole Productions,
Inc.; $7,500 Promissory Note, dated December 15, 1994 by
Kenneth Cole Productions, Inc. issued to The Bank of New
York; Letter of Termination of Personal Guarantees of Mr.
Kenneth D. Cole, dated December 8, 1994, in favor of The
Bank of New York for Kenneth Cole Productions, Inc.,
Unlisted, Inc. and Kenneth Cole Leather Goods, Inc.
(Incorporated by reference to Exhibit 10.03 to the
Company's 1994 Form 10-K).
10.03A -$10,000 Promissory Note, dated July 31, 1995 by
Kenneth Cole Productions, Inc. issued to The Bank of New
York. (Previously filed as Exhibit 10.03A to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference).
*10.04 -Kenneth Cole Productions, Inc. 1994 Stock Option
Plan. (Incorporated by reference to Exhibit 10.04 to the
Company's Registration Statement on Form S-1, Registration
No. 33-77636).
*10.05 -Employment Agreement, dated as of April 30, 1994,
between Kenneth Cole Productions, Inc. and Kenneth D. Cole.
(Incorporated by reference to Exhibit 10.05 to the
Company's Registration Statement on Form S-1, Registration
No. 33-77636).
*10.06 -Employment Agreement, dated as of April 30, 1994,
between Kenneth Cole Productions, Inc. and Paul Blum.
(Incorporated by reference to Exhibit 10.06 to the
Company's Registration Statement on Form S-1, Registration
No. 33-77636).
*10.07 -Employment Agreement, dated as of April 30,
1994, between Kenneth Cole Productions, Inc. and Stanley A.
Mayer; Stock Option Agreement dated as of March 31, 1994
between Kenneth Cole Productions, Inc. and Stanley A.
Mayer. (Incorporated by reference to Exhibit 10.07 to the
Company's Registration Statement on Form S-1, Registration
No. 33-77636).
Stock Option Agreement dated as of June 1, 1994,
between Kenneth Cole Productions, Inc. and Stanley A.
Mayer; Stock Option Agreement dated as of July 7, 1994,
between Kenneth Cole Productions, Inc. and Stanley A. Mayer
(Incorporated by reference to Exhibit 10.07 to the
Company's 1994 Form 10-K).
10.08 -Collective Bargaining Agreement by and between
the New York Industrial Council of the National Fashion
Accessories Association, Inc. and Leather Goods, Plastics,
Handbags and Novelty Workers' Union, Local 1, dated as of
April 25, 1987; Memorandum of Agreement by and between the
New York Industrial Council of the National Fashion
Accessories Association, Inc. and Leather Goods, Plastics,
Handbags and Novelty Workers' Union, Local 1, Division of
Local 342-50 United Food and Commercial Workers Union,
dated as of June 16, 1993. (Incorporated by reference to
Exhibit 10.08 to the Company's Registration Statement on
Form S-1, Registration No. 33-77636).
10.09-Memorandum of Agreement between the New York Industrial
Council of the National Fashion Accessories Association
Inc. and Local 1 Leather Goods, Plastics, Handbags, and
Novelty Workers Union, Division of Local 342-50 United Food
and Commercial Workers Union (Previously filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996 and incorporated
herein by reference).
*10.10 Employment Agreement between Kenneth Cole
Productions, Inc., and Paul Blum. (Previously filed as
Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.11 Sublease Agreement, dated June 17, 1996, between
Kenneth Cole Productions, Inc. and Liz Claiborne
Accessories, Inc. (Incorporated by reference to Exhibit
10.11 to the Company's 1996 Form 10-K).
*10.12 Amended and Restated Kenneth Cole Productions,
Inc. 1994 Stock Option Plan (Previously filed as an Exhibit
to the Registrant's Proxy Statement filed on April 22, 1997
and incorporated herein by reference).
*10.13 Employment Agreement between Kenneth Cole
Productions, Inc. and Susan Hudson (Previously filed as an
Exhibit to the Company's 1997 Form 10-K).
10.14 Lease Agreement, dated December 17, 1998, between
Kenneth Cole Productions, Inc. and SAAR Company, LLC.
(Previously filed as Exhibit 10.14 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 1998 and
incorporated by reference).
10.15 Common Stock Purchase Agreement, dated July 20,
1999, between Liz Claiborne, Inc. and Kenneth Cole Productions,
Inc. (Previously filed as Exhibit 10.01 to the Registrants
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999).
10.16 Registration Rights Agreement, dated July 20, 1999,
between Liz Claiborne, Inc. and Kenneth Cole Productions, Inc.
(Previously filed as Exhibit 10.02 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1999).
10.17 License Agreement, dated July 20, 1999, by and
between L.C.K.L., LLC and K.C.P.L., Inc. (Portions of this
exhibit have been omitted pursuant to a request for confidential
treatment and been filed separately with the Securities and
Exchange Commission. Such portions are designated by a "*".
(Previously filed as Exhibit 10.03 to the Registrants Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1999).
+10.18 Amended and Restated Employment Agreement, dated
as of September 1, 2000, between Kenneth Cole Productions,
Inc. and Paul Blum (Previously filed as Exhibit 10.10 to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996 and incorporated herein by
reference).
+21.01 List of Subsidiaries
+23.01 Consent of Ernst & Young LLP
____________________________
* Management contract or compensatory plan or
arrangement required to be identified pursuant to Item
14(a) of this report.
+ Filed herewith.
(b) Reports on Form 8-K
None.
(b) See (a) (3) above for a listing of the exhibits included as
a part of this report.
Kenneth Cole Productions, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-3
Consolidated Statements of Income for the years ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
Report of Independent Auditors
Board of Directors and Shareholders
Kenneth Cole Productions, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Kenneth Cole Productions, Inc. and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. Our
audits also included the financial statement schedule listed at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Kenneth Cole Productions, Inc. and
subsidiaries at December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
New York, New York ERNST & YOUNG LLP
March 13, 2001
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
2000 1999
Assets
Current assets:
Cash $ 74,608,000 $ 71,415,000
Due from factor 26,066,000 26,925,000
Accounts receivable, less allowance for doubtful
accounts of $550,000 in 2000, and $554,000 in 1999 9,117,000 6,990,000
Inventories 42,361,000 39,553,000
Prepaid expenses and other current assets 2,747,000 375,000
Deferred taxes, net 1,486,000 1,766,000
------------ ------------
Total current assets 156,385,000 147,024,000
Property and equipment-at cost, less accumulated
depreciation and amortization 38,202,000 19,431,000
Other assets:
Deferred taxes, net 3,198,000 1,484,000
Deposits and sundry 5,875,000 1,868,000
Deferred compensation plan assets 8,710,000 7,052,000
------------ ------------
Total other assets 17,783,000 10,404,000
------------ ------------
Total assets $212,370,000 $176,859,000
============ ============
See accompanying notes to consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
December 31,
2000 1999
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 34,688,000 $ 27,323,000
Accrued expenses and other current liabilities 14,716,000 10,372,000
Income taxes payable 3,213,000 3,272,000
------------ ------------
Total current liabilities 52,617,000 40,967,000
Accrued rent and other long term liabilities 5,027,000 2,932,000
Deferred compensation plan liabilities 8,710,000 7,052,000
Obligations under capital lease 380,000 577,000
Commitments and contingencies
Shareholders' equity:
Series A Convertible Preferred stock, par value $1.00,
1,000,000 shares authorized, 28,927 issued in 1999 29,000
Class A Common Stock, par value $.01, 20,000,000
shares authorized, 13,479,088 and 13,058,057 issued
in 2000 and 1999 135,000 131,000
Class B Convertible Common Stock, par value $.01,
9,000,000 shares authorized, 8,588,097 and 5,785,398
outstanding in 2000 and 1999 86,000 58,000
Additional paid-in capital 60,300,000 53,140,000
Cumulative other comprehensive income 403,000 235,000
Retained earnings 119,483,000 81,093,000
------------ ------------
180,407,000 134,686,000
Class A Common Stock in treasury, at cost,
1,506,700 and 723,750 shares in 2000 and 1999 (34,771,000) (9,355,000)
------------ ------------
Total shareholders' equity 145,636,000 125,331,000
------------ ------------
Total liabilities and shareholders' equity $212,370,000 $176,859,000
============ ============
See accompanying notes to consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Income
Year ended December 31,
2000 1999 1998
Net sales $384,713,000 $296,473,000 $220,405,000
Licensing revenue 21,619,000 14,955,000 8,357,000
------------ ------------ ------------
Net revenue 406,332,000 311,428,000 228,762,000
Cost of goods sold 217,046,000 169,976,000 130,027,000
------------ ------------ ------------
Gross profit 189,286,000 141,452,000 98,735,000
Selling, general, and
administrative expenses 128,532,000 100,836,000 72,145,000
------------ ------------ ------------
Operating income 60,754,000 40,616,000 26,590,000
Interest and other income, net 3,228,000 1,280,000 404,000
------------ ------------ ------------
Income before provision for
income taxes 63,982,000 41,896,000 26,994,000
Provision for income taxes 25,592,000 16,968,000 10,663,000
------------ ------------ ------------
Net income $ 38,390,000 $ 24,928,000 $ 16,331,000
============ ============ ============
Earnings per share:
Basic $1.87 $1.24 $.82
Diluted $1.75 $1.18 $.80
Shares used to compute earnings per share:
Basic 20,574,000 20,102,000 19,833,000
Diluted 21,892,000 21,059,000 20,456,000
See accompanying notes to consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Class A Common Stock Class B Common Stock
Number Number
of Shares Amount of Shares Amount
Balance at 12/31/97 11,115,241 $112,000 5,785,398 $ 58,000
Net income
Foreign currency
Translation adjustment
Comprehensive income
Exercise of stock options
and related tax benefits 299,305 2,000
Purchase of Class A
common stock
--------------------------------------------------
Balance at 12/31/98 11,414,546 114,000 5,785,398 58,000
Net income
Foreign currency
Translation adjustment
Comprehensive income
Exercise of stock options
and related tax benefits 143,511 2,000
Purchase of Class A
common stock
Stock Issuance 1,500,000 15,000
--------------------------------------------------
Balance at 12/31/99 13,058,057 131,000 5,785,398 58,000
Net income
Foreign currency
Translation adjustment
Comprehensive income
Exercise of stock options
and related tax benefits 324,379 3,000
Issuance of Class A
common stock for ESPP 6,652
Conversion of
Preferred Stock to
Class B Common Stock 2,892,699 29,000
Purchase of Class A
common stock
Conversion of
Class B shares to
Class A shares 90,000 1,000 (90,000) (1,000)
---------------------------------------------------
Balance at 12/31/00 13,479,088 $135,000 8,588,097 $ 86,000
===================================================
Series A
Convertible Accumulated
Preferred Stock Additional Other
Number Paid-In Comprehensive
of Shares Amount Capital Income
Balance at 12/31/97 28,927 $ 29,000 $19,617,000 $ 90,000
Net income
Foreign currency
Translation adjustment (16,000)
Comprehensive income
Exercise of stock options
and related tax benefits 2,600,000
Purchase of Class A
common stock
--------------------------------------------------
Balance at 12/31/98 28,927 29,000 22,217,000 74,000
Net income
Foreign currency
Translation adjustment 161,000
Comprehensive income
Exercise of stock options
and related tax benefits 1,938,000
Purchase of Class A
common stock
Stock Issuance 28,985,000
--------------------------------------------------
Balance at 12/31/99 28,927 29,000 53,140,000 235,000
Net income
Foreign currency
Translation adjustment 168,000
Comprehensive income
Exercise of stock options
and related tax benefits 6,951,000
Issuance of Class A
common stock for ESPP 209,000
Conversion of
Preferred Stock to
Class B Common Stock (28,927) (29,000)
Purchase of Class A
common stock
Conversion of
Class B shares to
Class A shares
--------------------------------------------------
Balance at 12/31/00 $60,300,000 $403,000
==================================================
Treasury Stock
Retained Number
Earnings of Shares Amount Total
Balance at 12/31/97 $ 39,834,000 $ 59,740,000
Net income 16,331,000 16,331,000
Foreign currency
Translation adjustment (16,000)
-------------
Comprehensive income 16,315,000
Exercise of stock options
and related tax benefits 2,602,000
Purchase of Class A
common stock (525,000) $ (4,968,000) (4,968,000)
------------------------------------------------------
Balance at 12/31/98 56,165,000 (525,000) (4,968,000) 73,689,000
Net income 24,928,000 24,928,000
Foreign currency
Translation adjustment 161,000
-------------
Comprehensive income 25,089,000
Exercise of stock options
and related tax benefits 1,940,000
Purchase of Class A
common stock (198,750) (4,387,000) (4,387,000)
Stock Issuance 29,000,000
------------------------------------------------------
Balance at 12/31/99 81,093,000 (723,750) (9,355,000) 125,331,000
Net income 38,390,000 38,390,000
Foreign currency
Translation adjustment 168,000
-------------
Comprehensive income 38,558,000
Exercise of stock options
and related tax benefits 6,954,000
Issuance of Class A
common stock for ESPP 209,000
Conversion of
Preferred Stock to
Class B Common Stock
Purchase of Class A
common stock (782,950) (25,416,000) (25,416,000)
Conversion of
Class B shares to
Class A shares
------------------------------------------------------
Balance at 12/31/00 $119,483,000 (1,506,700) $(34,771,000) $145,636,000
======================================================
See accompanying notes to consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
2000 1999 1998
Cash flows from operating activities
Net income $ 38,390,000 $ 24,928,000 $ 16,331,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,308,000 4,698,000 2,791,000
Impairment of long-lived assets 547,000
Unrealized loss (gain) on deferred
compensation plan 1,066,000 (1,096,000) (502,000)
Realized/Unrealized gain on
marketable securities (49,000)
Provision for doubtful accounts 270,000 1,344,000 197,000
Benefit for deferred taxes (1,434,000) (2,129,000) (373,000)
Changes in operating assets and liabilities:
Decrease (increase) in due from factors 859,000 (7,373,000) 3,740,000
Increase in accounts receivable (2,397,000) (3,460,000) (1,207,000)
Increase in inventories (2,808,000) (6,596,000) (9,592,000)
(Increase) decrease in prepaid expenses and
and other current assets (881,000) 1,360,000 (315,000)
Increase in deposits and deferred
compensation assets (6,731,000) (1,378,000) (2,119,000)
Increase in income taxes payable 4,389,000 2,286,000 1,140,000
Increase in accounts payable 7,365,000 16,679,000 807,000
Increase in accrued expenses and
other current liabilities 4,329,000 5,724,000 1,068,000
Increase in other non-current
liabilities 3,753,000 4,769,000 2,357,000
----------- ----------- -----------
Net cash provided by operating
activities 51,429,000 40,303,000 14,323,000
Cash flows from investing activities
Acquisition of property and
equipment, net (24,079,000) (8,505,000) (5,784,000)
Purchase of and proceeds from sale
of marketable securities (1,442,000)
----------- ----------- -----------
Net cash used in investing activities (25,521,000) (8,505,000) (5,784,000)
Cash flows from financing activities
Proceeds from exercise of stock options 2,505,000 1,188,000 1,506,000
Proceeds from issuance of stock
from purchase plan 209,000
Proceeds from issuance of stock 29,000,000
Principle payments of capital
lease obligations (182,000) (169,000) (40,000)
Purchase of treasury stock (25,416,000) (4,387,000) (4,968,000)
------------ ----------- -----------
Net cash (used in) provided by
financing activities (22,884,000) 25,632,000 (3,502,000)
Effect of exchange rate changes on cash 169,000 161,000 (16,000)
------------ ----------- -----------
Net increase in cash 3,193,000 57,591,000 5,021,000
Cash, beginning of year 71,415,000 13,824,000 8,803,000
------------ ----------- -----------
Cash, end of year $ 74,608,000 $ 71,415,000 $ 13,824,000
============ =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 80,000 $ 109,000 $ 29,000
Income taxes $ 22,569,000 $ 16,812,000 $ 9,901,000
See accompanying notes to consolidated financial statements.
Kenneth Cole Productions, Inc.
Notes to Consolidated Financial Statements
December 31, 2000
Note A - Summary of Significant Accounting Policies
1. Description of business
Kenneth Cole Productions, Inc. and its subsidiaries (the
"Company") designs, sources and markets a broad range of quality
footwear and handbags, and through license agreements, designs
and markets men's and women's apparel and accessories under its
Kenneth Cole New York, Reaction Kenneth Cole and Unlisted brands
for the fashion conscious consumer. The Company markets its
products for sale to more than 4,100 department stores and
specialty store locations in the United States and in several
foreign countries, through its retail and outlet store base, and
its interactive website. The Company also distributes consumer
catalogues that feature a variety of Kenneth Cole New York and
Reaction Kenneth Cole branded products.
2. Stock Split
On February 23, 2000, the Board of Directors declared a three-
for-two stock split to be effected in the form of a stock
dividend. Shareholders of record on March 6, 2000 received one
additional share of common stock for each two shares held. The
distribution date occurred on March 27, 2000.
In order to have effectuated the stock split for the shares of
outstanding Class B Common Stock, 2,892,699 shares of Class B
Common Stock would have been required to be issued. As of March
6, 2000, 214,602 shares of authorized but unissued Class B Common
Stock remained available for future issuance. As a result, an
insufficient number of authorized and unissued shares of Class B
Common Stock were available for distribution on March 27, 2000,
the distribution date for the stock split. Therefore, the
Company issued in the form of a dividend 28,927 shares of its
Series A Convertible Preferred Shares to the holders of Class B
Common Stock in lieu of shares of Class B Common Stock. Each
share of Series A Convertible Preferred Stock is automatically
convertible into 100 shares of Class B Common Stock upon the due
authorization of a sufficient number of shares of Class B Common
Stock to permit such conversion. On May 25, 2000, the Board of
Directors approved a resolution to increase the number of shares
of Class B Common Stock from 6.0 million to 9.0 million to permit
the conversion, thereby providing the holders of Series A
Convertible Preferred Stock with the shares of Class B Common
Stock that should have been issued to them pursuant to the stock
split. As a result, all 28,927 shares of Series A Convertible
Preferred Stock were converted into 2,892,699 shares of Class B
Common Stock.
All applicable share and per share data have been adjusted for
the stock split. Earnings per share also reflect the conversion
of Series A Convertible Preferred Stock to Class B Common Stock.
3. Principles of consolidation
The consolidated financial statements include the accounts of
Kenneth Cole Productions, Inc. and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in
consolidation.
4. Use of estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
5. Cash and cash equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less at the time of purchase
to be cash equivalents.
6. Marketable Securities
The Company's marketable securities consist of an equity
investment which is classified as "trading" and, accordingly is
carried on the balance sheet at fair market value. (See Note C)
7. Inventories
Inventories, which consist of finished goods, are stated at the
lower of cost or market. Cost is determined by the first-in,
first-out method.
8. Property and equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is
computed using the estimated useful lives of the related assets
ranging from three to seven years on a straight-line basis.
Leasehold improvements are amortized using the straight-line
method over the term of the related lease or the estimated useful
life, whichever is less.
The Company reviews long-lived assets for possible impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable as measured by
comparing the undiscounted future cash flows to the asset's net
book value. Impaired assets are recorded at the lesser of their
carrying value or fair value. The Company recorded a non-cash
charge of $547,000 for the year ended December 31, 1999 related
to the write down of asset values of one of the Company's retail
stores.
9. Income taxes
The Company accounts for income taxes using the liability
method. Under this method, deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
10. Revenue recognition
Wholesale revenues are recognized at the time merchandise is
shipped to customers. Retail store revenues are recognized at
the time of sale. The Company has also entered into various
trade name license agreements that provide revenues based on
minimum royalties and additional revenues based on percentage of
defined sales. Minimum royalty revenue is recognized on a
straight-line basis over each period, as defined, in each license
agreement. Royalties exceeding the defined minimum amounts are
recognized as income during the period corresponding to the
licensee's sales.
11. Advertising costs
The Company incurred advertising costs, including certain in-
house marketing expenses, of $16.8 million, $12.4 million and
$7.8 million for 2000, 1999 and 1998, respectively. The Company
records advertising expense concurrent with the first time the
advertising takes place.
12. Stock-based compensation
The Company measures compensation expense for its stock-based
compensation plans using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 Accounting for Stock
Issued to Employees ("APB No. 25") and related Interpretations.
The Company has adopted disclosure only provisions of Statement
of Financial Accounting Standards No. 123 Accounting for Stock-
Based Compensation ("SFAS 123") (see Note I). Dilutive earnings
per share includes the effects of employee stock options.
13. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and for Hedging
Activities" ("SFAS 133") and its amendment statements 137 and
138, in June 1999 and June 2000, respectively, which the Company
is required to adopt on January 1, 2001. The Statement requires
the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value
of derivatives are either offset against the change in fair value
of assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized
in earnings. (See Note G).
14. Shipping Costs
In accordance with Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees," the Company has
included in sales amounts billed to customers for shipping costs.
The related cost incurred by the Company has been included in the
cost of goods line item on the face of the income statement.
There is no impact on net income from the adoption of this
pronouncement. Prior periods have been reclassified accordingly.
15. Reclassifications
Certain amounts included in the 1999 and 1998 financial
statements have been reclassified to conform with the year-end
2000 presentation.
Note B - Due from Factors and Line of Credit Facility
The Company sells substantially all of its accounts receivable
to a factor, without recourse, subject to credit limitations
established by the factor for each individual account. Certain
accounts receivable in excess of established limits are factored
with recourse. Included in amounts due from factors at December
31, 2000 and 1999 are accounts receivable subject to recourse
totaling approximately $895,000 and $1,379,000, respectively. The
agreements with the factors provide for payment of a service fee
on receivables sold.
At December 31, 2000 and 1999, the balance due from factor,
which includes chargebacks due from customers, is net of
allowances for returns, discounts, and other deductions of
approximately $7,780,000 and $8,357,000, respectively. The
allowances are provided for known chargebacks and for potential
future customer deductions based on management's estimates.
The Company has entered into a Line of Credit Facility (the
"Facility") that, as amended, allows for uncommitted borrowings,
letter of credits and banker's acceptances subject to individual
maximums and in the aggregate, an amount not to exceed the lesser
of $25,000,000 or a "Borrowing Base." The Borrowing Base is
calculated on a specified percentage of eligible amounts due
under factoring arrangements, eligible non-factored accounts
receivable, and eligible inventory. Borrowings under the
revolving loan portion of the Facility ("Advances") are due on
demand. The Company may pay down and re-borrow at will under the
Facility. Advances bear interest at the Alternate Base Rate
(defined as the higher of the Prime Rate or the Federal Funds in
effect at borrowing date plus 1/2 of 1%) or the Note Rate (which
will be agreed upon between the lender and the Company). There
were no outstanding advances under this agreement at December 31,
2000 or 1999. Amounts available under the Facility at December
31, 2000 were reduced by $4,512,000 to $20,488,000 for open
letters of credit.
In connection with the line of credit, the Company has
agreed to eliminate all the outstanding advances under the
Facility for at least 30 consecutive days during each calendar
year. In addition, borrowings under the line of credit are
secured by certain assets of the Company.
Note C - Marketable Securities
At December 31, 2000, marketable securities in the amount of
$1,491,000 are included in prepaid expenses and other current
assets on the face of the Balance Sheet. The Company recorded
unrealized gains of $44,000 and realized gains of $5,500 during
the year which are included in other income.
Note D - Property and Equipment
Property and equipment consist of the following:
December 31,
2000 1999
Property and equipment-at cost:
Furniture and fixtures $ 12,606,000 $ 9,640,000
Machinery and equipment 9,038,000 5,910,000
Leasehold improvements 31,831,000 14,918,000
Leased equipment under capital lease 967,000 967,000
------------ ------------
54,442,000 31,435,000
Less accumulated depreciation and amortization 16,240,000 12,004,000
------------ ------------
Net property and equipment $ 38,202,000 $ 19,431,000
============ ============
Note E - Accrued Expenses and Other Liabilities
Accrued expenses and other current liabilities consist of the following:
December 31,
2000 1999
Rent $ 481,000 $ 457,000
Compensation 7,076,000 6,010,000
Customer credits 729,000 671,000
Deferred licensing income 3,520,000 530,000
Other 2,910,000 2,704,000
----------- -----------
$14,716,000 $10,372,000
=========== ===========
Note F - Segment Reporting
Kenneth Cole Productions, Inc. has three reportable segments:
Wholesale, Consumer Direct, and Licensing/International. The
Wholesale segment designs and sources a broad range of fashion
footwear, handbags and accessories and markets its products for
sale to more than 4,100 department and specialty store locations
and to the Company's Consumer Direct segment. The Consumer
Direct segment markets the broad selection of the Company's
branded products, including licensee products, for sale directly
to the consumer through its own channels of distribution, which
include full price retail stores, outlet stores, e-commerce (at
website address www.kennethcole.com and www.kc-reaction.com) and
catalogs. The Licensing/International segment, through third
party licensee agreements, has evolved the Company from a
footwear resource to a diverse lifestyle brand competing
effectively in about 30 apparel and accessories categories for
both men and women. The Company maintains control over quality
and image and allows licensees to sell to the same channels of
distribution as those of the Company's wholesale division. The
Company earns royalties on the licensee's sales of branded
product.
The Company evaluates performance and allocates resources
based on profit or loss from each segment. The wholesale segment
is evaluated on income from operations before income taxes. The
consumer direct segment is evaluated on profit or loss from
operations before unallocated corporate overhead and income
taxes. The Licensing/International segment is evaluated based on
royalties earned and pretax segment profit. The accounting
policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
Intersegment sales between the wholesale and consumer direct
segment include a markup, which is eliminated in consolidation.
The Company's reportable segments are business units that
offer products to overlapping consumers through different
channels of distribution. Each segment is managed separately and
planning, implementation and results are reviewed internally by
the executive management committee.
Financial information of the Company's reportable segments is as
follows:
Consumer Licensing/
Wholesale Direct International Totals
Year Ended December 31, 2000
Revenues $236,474 $148,239 $ 21,619 $406,332
Intersegment revenues 29,952 29,952
Interest income, net 3,228 3,228
Depreciation expense 1,719 3,581 8 5,308
Segment income before
provision for income taxes 42,253 22,088 16,976 81,317
Segment assets 155,018 57,336 2,852 215,206
Expenditures for long-
lived assets 11,621 12,455 3 24,079
Year Ended December 31, 1999
Revenues $186,673 $109,800 $ 14,955 $311,428
Intersegment revenues 23,559 23,559
Interest income, net 1,280 1,280
Depreciation expense 1,690 2,999 9 4,698
Segment income before
provision for income taxes 23,799 19,120 12,266 55,185
Segment assets 143,552 32,415 2,720 178,687
Expenditures for long-
lived assets 1,269 6,688 1 7,958
Year Ended December 31, 1998
Revenues $152,026 $ 68,379 $ 8,357 $228,762
Intersegment revenues 18,679 18,679
Interest expense, net 404 404
Depreciation expense 1,072 1,715 4 2,791
Segment income before
provision for income taxes 20,880 7,327 6,936 35,143
Segment assets 69,513 26,798 1,690 98,001
Expenditures for long-
lived assets 1,803 4,923 25 6,751
The reconciliation of the Company's reportable segment revenues,
profit and loss, and assets are as follows:
2000 1999 1998
Revenues
Revenues for reportable segments $406,332 $311,428 $228,762
Intersegment revenues for reportable segments 29,952 23,559 18,679
Elimination of intersegment revenues (29,952) (23,559) (18,679)
-------- -------- --------
Total consolidated revenues $406,332 $311,428 $228,762
======== ======== ========
Income
Total profit for reportable segments $ 81,317 $ 55,185 $ 35,143
Elimination of intersegment profit (9,919) (7,808) (4,914)
Unallocated corporate overhead ( 7,416) ( 5,481) (3,235)
Total income before provision for -------- -------- --------
income taxes $ 63,982 $ 41,896 $ 26,994
======== ======== ========
Assets
Total assets for reportable segments $215,206 $178,687 $ 98,001
Elimination of inventory profit in
consolidation (2,836) (1,828) (1,321)
-------- -------- --------
Total consolidated assets $212,370 $176,859 $ 96,680
======== ======== ========
Revenues from international customers are less than two percent
of the Company's consolidated revenues.
Note G - Foreign Currency Transactions
The Company routinely enters into forward exchange contracts in
anticipation of future purchases of inventory denominated in
foreign currencies. These forward exchange contracts are used to
reduce the Company's exposure to changes in foreign exchange
rates and are not held for the purpose of trading or speculation.
The Company had forward exchange contracts of $16,000,000 and
$10,500,000 at December 31, 2000 and 1999, respectively to
protect the purchase price of merchandise under such commitments.
Gains and losses on forward exchange contracts are deferred and
accounted for as part of the purchase price of imported
merchandise. At December 31, 2000, forward exchange contracts
have maturity dates through June 2001.
Based on the Company's derivative positions at December 31,
2000, the Company estimates that upon adoption of SFAS 133, the
net unrealized gain of approximately $1,122,000 would be recorded
as a charge to other comprehensive income and a reduction to the
purchase price of the imported merchandise.
Note H - Income Taxes
Significant items comprising the Company's deferred tax assets
and liabilities are as follows:
December 31,
2000 1999
Deferred tax assets:
Inventory allowances and capitalization $ 631,000 $ 950,000
Allowance for doubtful accounts and
sales allowances 677,000 608,000
Deferred rent 1,836,000 1,091,000
Deferred compensation 3,399,000 2,414,000
Other 160,000 163,000
---------- ----------
6,703,000 5,226,000
Deferred tax liabilities:
Depreciation (431,000) (1,027,000)
Undistributed foreign earnings (1,588,000) (949,000)
---------- ----------
(2,019,000) (1,976,000)
---------- ----------
Net deferred tax assets $4,684,000 $3,250,000
========== ==========
The provision (benefits) for income taxes consists of the
following:
December 31,
2000 1999 1998
Current:
Federal $ 23,322,000 $ 16,202,000 $ 9,249,000
State and local 3,475,000 2,810,000 1,750,000
Foreign 69,000 85,000 37,000
------------ ------------ ------------
26,866,000 19,097,000 11,036,000
Deferred:
Federal (1,115,000) (1,840,000) (330,000)
State and local (159,000) (289,000) (43,000)
------------ ------------ ------------
(1,274,000) (2,129,000) (373,000)
------------ ------------ ------------
$ 25,592,000 $ 16,968,000 $ 10,663,000
============ ============ ============
The reconciliation of income tax computed at the U.S. federal
statutory tax rate to the effective income tax rate for 2000,
1999 and 1998 is as follows:
2000 1999 1998
Federal income tax at statutory rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit 5.0% 5.5% 4.5%
----- ----- -----
40.0% 40.5% 39.5%
===== ===== =====
Note I - Stock Options Plans and Grants
1. 1994 stock option plan
The Company's 1994 Incentive Stock Option Plan, as amended,
authorizes the grant of options to employees for up to 3,000,000
shares of the Company's Class A Common Stock. Certain options
granted under the Plan vest in one-third increments in each of
the first, second and third years following the date of grant,
while certain other options vest over five years. Options
granted have 10-year terms. Non-employee Director options
granted have 10 year terms and vest 50% on the first anniversary
of the date of grant and become fully exercisable at the end of
two years.
The Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, in accounting for its employee
stock options. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation
expense is recognized. Had compensation cost for the stock
options been determined based on the fair value at the grant
dates for awards under the plan, consistent with the alternative
method set forth under SFAS 123, net income and earnings per
share would have been reduced by approximately $2,051,000 and
$.09, $1,136,000 and $.06 and $643,000 and $.03 in 2000, 1999 and
1998, respectively.
The effects of applying SFAS 123 on this pro forma disclosure
may not be indicative of future results. SFAS 123 does not apply
to grants prior to 1995, and additional awards in future years
may be granted.
Pro forma information regarding net income and earnings per
share is required by Statement 123 and has been determined as if
the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999, and 1998, respectively: risk-free
interest rate of 5.8%, 5.55% and 5.25%; 0% dividend yields;
expected volatility factors of 54.6%, 48.5% and 54.2% and
expected lives of 4.2, 4.7 and 5.6 years. The weighted-average
fair value of options granted during 2000, 1999, and 1998 were
$15.12, $13.47 and $9.55.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The following table summarizes all stock option transactions
from December 31, 1997 through December 31, 2000.
Weighted-Average
Shares Exercise Price
Outstanding at December 31, 1997 1,432,820
Granted 503,550 $ 11.60
Exercised (249,881) $ 5.70
Forfeited (148,332) $ 8.49
---------
Outstanding at December 31, 1998 1,538,157
Granted 431,400 $ 18.93
Exercised (143,511) $ 8.24
Forfeited (95,348) $ 10.37
---------
Outstanding at December 31, 1999 1,730,698
Granted 433,750 $ 31.10
Exercised (274,380) $ 8.52
Forfeited (79,023) $ 18.41
---------
Outstanding at December 31, 2000 1,811,045
=========
The following table summarizes information concerning
currently outstanding and exercisable stock options at December
31, 2000:
Outstanding Stock Options Exercisable Stock Options
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices Shares Life Price Shares Price
$ 4.00 to $12.00 835,320 5.66 years $ 9.35 558,745 $ 8.50
$12.01 to $24.00 511,125 7.70 years $16.19 134,100 $15.36
$24.01 to $36.00 464,600 8.97 years $30.41 9,050 $24.92
2. Stock option grants
In 1994, the Board of Directors granted non-transferable stock
options to an officer of the Company, for the purchase of 334,425
shares of Class A Common Stock at an exercise price of $1.4583
per share. In 2000, 50,000 options were exercised and at
December 31, 2000, 130,000 options were outstanding and
exercisable.
Note J - Benefit Plans
1. 401(k) Plan
The Company's 401(k) profit-sharing plan covers all non-union
employees, subject to certain minimum age and length of service
requirements who are permitted to contribute specified
percentages of their salary up to the maximum permitted by the
Internal Revenue Service. The Company is obligated to make a
matching contribution and may make an additional discretionary
contribution, as defined. During 2000, the Company amended the
plan's matching contribution of 25% of the participant's
contribution, up to a maximum of 4% to 6% of the participant's
base pay. Contributions to the plan for the years ended December
31, 2000, 1999 and 1998 were approximately $200,000, $120,000 and
$89,000, respectively.
2. Deferred compensation plan
The Kenneth Cole Productions, Inc. Deferred Compensation Plan
is an unfunded non-qualified plan maintained primarily to provide
deferred compensation benefits for a select group of "highly
compensated employees." The Company accounts for the investments
in the deferred compensation plan in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity
Securities," and such investments have been classified as
trading.
3. Supplemental Employee Retirement Plan
In December 2000, the Company deposited $1,308,000 into a
Supplemental Executive Retirement Plan ("SERP") for certain key
executives. The amount has been recorded in deposits and sundry
on the face of the balance sheet. Benefits payable under this
plan are based upon the growth of the individual directed
investments from the Company's initial and future contributions.
Benefits earned under the SERP are vested after 3 years, however,
the benefit is ratably reduced if the participant retires prior
to age 60. In addition, SERP participants are covered by life
insurance through a portion of the Company's contribution. The
SERP is expected to be executed during the first quarter of
fiscal 2001.
4. Employee Stock Purchase Plan
During 2000, the Company established a qualified employee
stock purchase plan ("ESPP"), the terms of which allow for
qualified employees (as defined) to participate in the purchase
of designated shares of the Company's Class A Common Stock at a
price equal to 85% of the lower of the closing price at the
beginning or end of each quarterly stock purchase period. On
March 7, 2000, the Company filed with the Securities and Exchange
Commission Form S-8 registering 150,000 shares of Class A Common
Stock for the ESPP. As of December 31, 2000 employees have
purchased approximately 6,700 shares.
Note K - Commitments and Contingencies
1. Capital lease
Included in property and equipment are assets held under a
capital lease of $967,000 less accumulated amortization of
$435,000. At December 31, 2000, future minimum lease payments
consist of the following:
2001 $235,000
2002 235,000
2003 177,000
2004 0
2005 0
--------
Total minimum lease payments $647,000
Less amounts representing interest (71,000)
--------
Present value of minimum lease payments 576,000
Less current maturities (196,000)
--------
Capital lease obligation, less current maturities $380,000
========
2. Operating leases
The Company leases office, retail, and warehouse facilities
under non-cancelable operating leases between 5 and 20 years with
options to renew at varying terms. Future minimum lease payments
for non-cancelable leases with initial terms of one year or more
consisted of the following at December 31, 2000:
2001 $ 18,203,000
2002 19,230,000
2003 20,002,000
2004 19,862,000
2005 18,521,000
Thereafter 126,105,000
------------
Total minimum cash payments $221,923,000
============
In addition, certain of these leases contain rent escalation and
require additional percentage rent payments to be made.
Rent expense for the years ended December 31, 2000, 1999 and
1998 was $18,477,000, $13,530,000 and $9,313,000, respectively.
Sub-tenant rental income for 2000 was $293,000. Future minimum
rental income from subtenant is approximately $703,000 a year for
each of the next six years.
3. Letters of credit
At December 31, 2000 and 1999, the Company was contingently
liable for approximately $2,029,000 and $2,589,000 of open
letters of credit, respectively. In addition, at December 31,
2000 and 1999, the Company was contingently liable for
approximately $2,483,000 of standby letters of credit.
4. Concentrations
In the normal course of business, the Company sells to major
department stores and specialty retailers and believes that its
broad customer base will mitigate the impact that financial
difficulties of any such retailers might have on the Company's
operations. In 2000 and 1999, the Company had no customer account
for more than 10% of net sales.
The Company sources each of its product lines separately, based
on the individual design, styling and quality specifications of
such products. The Company primarily sources its products
directly or indirectly through manufacturers in Italy, Spain,
Brazil, India, China and Korea. The Company attempts to limit
the
concentration with any one manufacturer. However, approximately
40% and 58% of the dollar value of total handbag purchases by the
Company were sourced through one agent utilizing many different
factories in China, during 2000 and 1999, respectively.
Approximately 41% and 43% of Kenneth Cole and Reaction Kenneth
Cole men's footwear purchases were from one manufacturer in Italy
utilizing many different factories, during 2000 and 1999,
respectively. The Company believes it has alternative
manufacturing sources available to meet its current and future
production requirements in the event the Company is required to
change current manufacturers or current manufacturers are
unavailable to fulfill the Company's production needs.
At December 31, 2000, the Company had approximately 12% of its
employees covered under a collective bargaining agreement with a
local union.
5. Other
The Company, from time to time, is a party to litigation that
arises in the normal course of its business operations. The
Company presently is not a party to any such litigation that
would have a material adverse effect on its business or
operations.
Note L - Shareholders' Equity
1. Common stock
Class A Common Shareholders are entitled to one vote for each
share held of record, and Class B Common Shareholders are
entitled to ten votes for each share held of record. Each share
of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of the Class B Shareholder. The Class
A Common Shareholders vote together with Class B Common
Shareholders on all matters subject to shareholder approval,
except Class A Common Shareholders vote separately as a class to
elect 25% of the Board of Directors of the Company. Shares of
neither class of common stock have preemptive or cumulative
voting rights.
2. Preferred stock
The Company's Certificate of Incorporation authorizes the
issuance of 1,000,000 shares of preferred stock. The preferred
stock may be issued from time to time as determined by the Board
of Directors of the Company, without shareholder approval. Such
preferred stock may be issued in such series and with such
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or
other provisions, as may be fixed by the Board of Directors. As
discussed in note A (2), the Company issued, in a form of a
dividend, 28,927 shares of Series A Convertible Preferred Stock
on March 27, 2000, which were
subsequently converted to 2,892,699 shares of Class B Common
Stock. The financial statements reflect this dividend.
3. Common Stock repurchase
On August 13, 1999, the Board of Directors of the Company
authorized management to repurchase, from time to time, an
additional 1,500,000 shares up to an aggregate 2,250,000 shares
of the Company's Class A Common Stock. As of December 31, 2000,
1,506,700 shares were repurchased in the open market at an
aggregate price of $34,771,000 and have been recorded as treasury
stock. Subsequent to December 31, 2000 the Board of Director's
increased the shares available to be repurchased by the Company
by 2,000,000.
Note M - Licensing Agreement
On July 1, 1999, the Company and Liz Claiborne Inc. (along with
its subsidiaries and affiliates collectively "Liz Claiborne")
entered into a multi-brand initiative to launch Kenneth Cole
Productions, Inc. into the women's apparel market under an
exclusive womenswear license agreement. The agreement granted
Liz Claiborne rights to manufacture, distribute and sell women's
sportswear under the licensed marks of Kenneth Cole, Kenneth Cole
New York, Reaction Kenneth Cole and Unlisted. The initial term
is through December 31, 2004, with options to renew through
December 31, 2019 based upon Liz Claiborne reaching certain sales
thresholds. During these periods, Liz Claiborne is obligated to
pay the Company a percentage of net sales based upon the terms of
the agreement. Simultaneously with the licensing agreement, Liz
Claiborne purchased 1.5 million shares of Kenneth Cole
Productions, Inc. Class A Common Stock par value $.01 per share
at a price of $19.33 (adjusted to give effect for the Company's
three-for-two stock split), the fair market value at the date of
the agreement.
Note N - Related Party Transaction
During 2000, the Company contributed $500,000 to the Kenneth
Cole Foundation. The Kenneth Cole Foundation, a not for profit
organization, fosters programs to aid primarily in the fields of
education, medical research and arts and culture. In addition,
the Board of Directors authorized a $500,000 contribution payable
to the Kenneth Cole Productions, Inc. Foundation.
Note O - Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 2000 and 1999 appear
below (in thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
2000
Net sales $ 90,627 $ 85,480 $104,609 $103,997
Licensing revenue 4,036 5,339 6,343 5,901
Net revenues 94,663 90,819 110,952 109,898
Gross profit 43,257 40,292 52,770 52,967
Operating income 12,154 10,140 20,564 17,896
Net income 7,774 6,411 12,926 11,279
Earnings per share basic $ .37 $ .31 $ .63 $ .55
Earnings per share diluted $ .35 $ .29 $ .59 $ .52
1999
Net sales $ 63,887 $ 62,449 $ 81,695 $ 88,442
Licensing revenue 2,510 3,048 4,226 5,171
Net revenues 66,397 65,497 85,921 93,613
Gross profit 29,447 28,669 39,259 44,077
Operating income 7,851 5,846 13,233 13,686
Net income 4,730 3,571 8,067 8,560
Earnings per share basic $ .24 $ .18 $ .40 $ .41
Earnings per share diluted $ .23 $ .17 $ .38 $ .39
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KENNETH COLE PRODUCTIONS, INC.
By /s/ KENNETH D.COLE
Kenneth D. Cole
President and Chief Executive Officer
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/S/ KENNETH D. COLE President, Chief March 27, 2001
Kenneth D. Cole Executive Officer and Director
/S/ PAUL BLUM Executive Vice President, March 27, 2001
Paul Blum Chief Operating Officer and Director
/S/ STANLEY A. MAYER Executive Vice President, March 27, 2001
Stanley A. Mayer Chief Financial Officer, Treasurer and
Director
/S/ DAVID P. EDELMAN Senior Vice President Finance March 27, 2001
David P. Edelman (Principal Accounting Officer)
/S/ ROBERT C. GRAYSON Director March 27, 2001
Robert C. Grayson
/S/ DENIS F. KELLY Director March 27, 2001
Denis F. Kelly
/S/ PHILLIP B. MILLER Director March 27, 2001
Phillip B. Miller
Kenneth Cole Productions, Inc.
Schedule II
Valuation and Qualifying Accounts
For the Years Ended December 31, 2000, 1999, and 1998
(in thousands)
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deduction of Period
Year ended December 31, 2000
Allowance for doubtful accounts $ (554,000) $ (270,000) $ 274,000 $ (550,000)
Reserve for returns and
sales allowances (8,357,000) 577,000 (7,780,000)
----------- ----------- --------- -----------
$(8,911,000) $ (270,000) $ 851,000 $(8,330,000)
=========== =========== ========= ===========
Year ended December 31, 1999
Allowance for doubtful accounts $ (125,000) $(1,344,000) $ 915,000 $ (554,000)
Reserve for returns and
sales allowances (3,300,000) (5,057,000) (8,357,000)
----------- ----------- --------- -----------
$(3,425,000) $(6,401,000) $ 915,000 $(8,911,000)
=========== =========== ========= ===========
Year ended December 31, 1998
Allowance for doubtful accounts $ (80,000) $ (197,000) $ 152,000 $ (125,000)
Reserve for returns and
sales allowances (2,900,000) (400,000) (3,300,000)
----------- ----------- --------- -----------
$(2,980,000) $ (597,000) $ 152,000 $(3,425,000)
=========== =========== ========= ===========
Exhibit 10.18
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement, dated September
1, 2000, is effective as of January 1, 2001 (the "Effective
Date") and is entered into between Kenneth Cole Productions,
Inc., a New York corporation (the "Company"), and Paul Blum
("Executive").
WHEREAS, Executive is currently employed as Chief Operating
Officer of the Company pursuant to an Employment Agreement with
the Company dated May 30, 1996, as amended and restated by the
Amended and Restated Employment Agreement, dated June 11, 1998
(the "Prior Agreement"); and
WHEREAS, Executive and the Company desire to amend and restate
the Prior Agreement in its entirety in this Agreement, which
shall set forth the terms and conditions under which Executive
shall continue to be so employed.
NOW, THEREFORE, the parties hereby agree as follows:
Employment, Duties and Responsibilities
Employment. Executive shall serve as Chief Operating Officer
of the Company. Executive agrees to devote his full time and
efforts to promote the interests of the Company.
Duties and Responsibilities. Executive shall perform such
duties and exercise such supervision and authority over and with
regard to the business of the Company as are similar in nature to
those duties and services customarily associated with the
position of Chief Operating Officer.
Base of Operation. Executive's principal base of operation for
the performance of his duties and responsibilities under this
Agreement shall be the offices of the Company in New York, New
York or the Company's offices in Secaucus, New Jersey, or at such
other office location for senior management utilized by the
Company from time to time; provided, however, that Executive
shall perform such duties and responsibilities not involving a
permanent transfer of his base of operation outside of the New
York metropolitan area at such other places as shall from time to
time be reasonably necessary to fulfill his obligations
hereunder.
Term
Term. 5.The term of this Agreement (the "Term") shall commence
on the Effective Date and shall continue until December 31, 2003.
Except as expressly provided herein, the terms of the Prior
Agreement shall govern the employment relationship between
Executive and the Company until December 31, 2000.
Executive represents and warrants to the Company that to the
best of his knowledge, neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or
will violate the provisions of any other agreement to which he is
a party or by which he is bound.
Compensation and Expenses
Salary. As compensation and consideration for the performance
by Executive of his obligations under this Agreement, Executive
shall be entitled to and the Company shall pay Executive a base
salary during each year of the Term (each, a "Base Salary"),
payable in accordance with the normal payment procedures of the
Company and subject to such withholdings and other normal
employee deductions as may be required by law, as follows:
$600,000 during fiscal year 2001;
$650,000 during fiscal year 2002; and
$700,000 during fiscal year 2003.
Bonuses and Other Compensation.
Executive's Target Bonus for each fiscal year of the Company
which ends during the Term (each, a "Fiscal Year") shall be 50%
of Base Salary. The amount of bonus to which Executive shall
actually be entitled for each Fiscal Year, if any, shall be equal
to the percentage of Executive's Base Salary for the applicable
Fiscal Year that corresponds to the amount by which Actual Pre-
Tax Income either exceeds or is less than Budgeted Pre-Tax Income
for the applicable Fiscal Year, as indicated on the Bonus
Schedule below; provided that, if no bonus is earned by Executive
for a Fiscal Year, the Company in its discretion may grant a
bonus of up to 25% of Executive's Target Bonus (i.e., 12.5% of
Base Salary) based on the achievement of personal goals to be
agreed upon by Executive and the Chief Executive Officer of the
Company.
Actual Pre-Tax Income for each Fiscal Year shall be the Company's
pre-tax income determined in accordance with generally accepted
accounting principles and the Company's historical practices.
Budgeted Pre-Tax Income shall be an amount approved for the
applicable Fiscal Year by the Board of Directors of the Company
(the "Board") in its discretion, which amount shall be
communicated to the Executive each Fiscal Year. All such
determinations by the Board shall be final and binding.
Bonus Schedule
Difference between Actual Pre-Tax Income Bonus as a
("Actual PTI") and Percentage of
Budgeted Pre-Tax Income ("Budgeted PTI") Executive's Base
Salary
Actual PTI exceeds Budgeted PTI by 20% or more 100%
Actual PTI exceeds Budgeted PTI by 10% to 19.9% 75%
Actual PTI equals Budgeted PTI or exceeds
Budgeted PTI by 0.1% to 9.9% 50%
Budgeted PTI exceeds Actual PTI by up to 10% 25%
Budgeted PTI exceeds Actual PTI by more than 10% 0%
Benefits.
Executive shall participate during the Term in such pension, life
insurance, health, disability and major medical insurance plans,
and in such other employee benefit plans and programs, for the
benefit of the employees of the Company, as may be maintained
from time to time during the Term, in each case to the extent and
in the manner available to other officers of the Company and
subject to the terms and provisions of such plans or programs and
to the Company's right to amend, modify or terminate such plans
or programs.
Executive shall be entitled to a reasonable paid vacation period
(but not necessarily consecutive vacation weeks) during the Term.
Automobile Allowance. The Company will reimburse Executive in
an amount not to exceed $1200 per month during the Term for
automobile expenses incurred by him in connection with the
performance of his duties hereunder during the Term, subject,
however, to the Company's policies relating to business-related
expenses as in effect from time to time during the Term.
Other Expenses. The Company will reimburse Executive for
reasonable business-related expenses incurred by him in
connection with the performance of his duties hereunder during
the Term, subject, however, to the Company's policies relating to
business-related expenses as in effect from time to time during
the Term.
Stock Option Award. The Company will grant Executive an option
to purchase ten thousand (10,000) shares of the Company's common
stock on the Effective Date (exercisable at the fair market value
of such stock on the date of grant) and on each anniversary date
of the Effective Date, pursuant to the Company's then existing
employee stock option plan, provided Executive remains employed
with the Company through such date under the terms of this
Agreement.
Taxes. All compensation herein is subject to withholding of
all taxes payable with respect thereto and deductions for
insurance contributions as applicable.
Exclusivity, Etc.
Exclusivity. Executive agrees to perform his duties,
responsibilities and obligations hereunder efficiently and to the
best of his ability. Executive agrees that he will devote his
entire working time, care and attention and best efforts to such
duties, responsibilities and obligations throughout the Term.
Executive also agrees that he will not engage in any other
business activities, whether or not pursued for gain, profit or
other pecuniary advantage, that are competitive with the
activities of the Company. Executive agrees that all of his
activities as an employee of the Company shall be in conformity
with all present and future policies, rules and regulations and
directions of the Company not inconsistent with this Agreement.
Other Business Ventures. Executive agrees that, so long as he
is employed by the Company, he will not own, directly or
indirectly, any controlling or substantial stock or other benefi
cial interest in any business enterprise which is engaged in, or
competitive with, any business engaged in by the Company.
Notwithstanding the foregoing, Executive may own, directly or
indirectly, up to 10% of the outstanding capital stock of any
business having a class of capital stock which is traded on any
national stock exchange or in the over-the-counter market.
Confidentiality; Non-solicitation.
Executive agrees that he will not, at any time during or after
the Term, make use of or divulge to any other person, firm,
corporation or other entity any trade or business secret,
process, method or means, or any other confidential or
proprietary information concerning the business or policies of
the Company which he may have learned in connection with his
employment hereunder. For purposes of this Agreement, a "trade
or business secret, process, method or means, or any other
confidential or proprietary information" shall mean and include
written information treated as confidential or as a trade secret
by the Company. Executive's obligation under this Section 4.3(a)
shall not apply to any information which (i) is known publicly;
(ii) is in the public domain or hereafter enters the public
domain without the fault of Executive; (iii) is known to
Executive prior to his receipt of such information from the
Company, as evidenced by written records of Executive or (iv) is
hereafter disclosed to Executive by a third party not under an
obligation of confidence to the Company. Executive agrees not to
remove from the premises of the Company, except as an employee of
the Company in pursuit of the business of the Company or except
as specifically permitted in writing by the Company, any document
or other object containing or reflecting any such confidential
information. Executive recognizes that all such documents and
objects, whether developed by him or by someone else, will be the
sole exclusive property of the Company. Upon termination of his
employment hereunder, Executive shall forthwith deliver to the
Company all such confidential information, including without
limitation all lists of customers, correspondence, accounts,
records and any other documents or property made or held by him
or under his control in relation to the business or affairs of
the Company, and no copy of any such confidential information
shall be retained by him. Executive further agrees that he will
not at any time during or after the Term make any statements or
comments of a defamatory or disparaging nature to third parties
regarding the Company or its officers, directors, personnel or
products.
(i) While the Executive is employed by the Company, (ii) during
the period in which the Executive receives payments as set forth
in Section 5.6 hereof following a Wrongful Termination (as
defined herein), and (iii) for a period of one (1) year following
termination of the Executive's employment by the Company for
Cause (as defined herein) or by the Executive for other than Good
Reason (as defined herein), the Executive shall not directly or
indirectly, whether as an employee, consultant, independent
contractor, partner, joint venturer or otherwise, (A) solicit or
induce, or in any manner attempt to solicit or induce, any person
employed by, or as agent of, the Company to terminate such
person's contract of employment or agency, as the case may be,
with the Company or (B) divert, or attempt to divert, any person,
concern, or entity from doing business with the Company, nor will
he attempt to induce any such person, concern or entity to cease
being a customer or supplier of the Company.
Executive agrees that, at any time and from time to time during
and after the Term, he will execute any and all documents which
the Company may deem reasonably necessary or appropriate to
effectuate the provisions of this Section 4.3.
Covenant Not to Compete. (a) While the Executive is employed
by the Company, (b) during the period in which the Executive
receives payments as set forth in Section 5.6 hereof following a
Wrongful Termination and (c) for a period of one (1) year
following termination of the Executive's employment by the
Company for Cause or by the Executive for other than Good Reason,
the Executive will not, directly or indirectly, whether as an
executive, agent, officer, director, consultant, independent
contractor, partner, joint venturer or otherwise, own (other than
the ownership of not more than ten percent (10%) of the capital
stock or equity of any entity the capital stock or equity of
which is publicly traded), manage, operate, control, or
participate in the ownership, management, operation or control
of, or authorize the use of the Executive's or the Company's name
by, or be connected in any manner with, any business, firm,
partnership, corporation, limited liability company or other
entity, that engages in business activities of the type carried
on by the Company (including its subsidiaries) either at the date
hereof or on the date of such termination of employment.
Enforcement. The existence of a claim or cause of action by
Executive against the Company shall not constitute a defense to
the Company's enforcement of the provisions of Article IV but
such claim or cause of action shall be determined separately.
Termination
Termination by the Company. The Company shall have the right
to terminate the Executive's employment at any time for "Cause".
For purposes of this Agreement, "Cause" shall mean (i) continued
failure by the Executive to perform his duties hereunder, (ii)
the commission of a felony or any other act involving dishonest,
fraudulent or unethical conduct, (iii) any breach of any
statutory or common law duty of loyalty to the Company, or (iv)
any willful or intentional act of the Executive that has or can
reasonably be expected to have the effect of injuring the
reputation or business of the Company or its affiliates in any
material respect. In the case of the failure set forth in (i)
above, Executive shall be given notice by the Company specifying
in detail the particular act or failure to act on which the
Company is relying to terminate him for Cause, and Executive
shall have a period of thirty (30) days to cure any such act or
failure to act unless such act or failure to act is part of a
pattern of continued misconduct or undertaken in bad faith.
Death. In the event Executive dies during the Term, this
Agreement shall automatically terminate, such termination to be
effective on the date of Executive's death.
Disability. In the event that Executive shall suffer a
disability which shall have prevented him from performing
satisfactorily his obligations hereunder for a period of at least
ninety (90) consecutive days, the Company shall have the right to
terminate this Agreement, such termination to be effective upon
the giving of notice thereof to Executive in accordance with
Section 6.3 hereof.
Termination by Executive for Good Reason. The Executive's
employment may be terminated during the Term by the Executive for
Good Reason, by giving sixty (60) days advance written notice to
the Company. Such notice shall specify in detail the particular
acts or omissions on which the Executive is relying to terminate
his employment for Good Reason, and the Company shall have a
period of thirty (30) days to cure any such act or failure to act
unless such act or failure is incapable of cure. For purposes of
this Agreement, the following circumstances shall constitute
"Good Reason":
the assignment to the Executive of any duties inconsistent in any
material respect with the Executive's position, (including
status, offices, titles and reporting requirements), or with his
authority, duties or responsibilities as contemplated by Section
1.1 or 1.2 of this Agreement, or any other action by the Company
or its successor which results in a material diminution or
material adverse change in such position, status, authority,
compensation, duties or responsibilities;
any material breach by the Company or its successor of the
provisions of this Agreement;
any failure by the Company to comply with and satisfy Section
6.2(b) of this Agreement; or
a relocation of Executive's principal base of operation to any
location other than the locations described in Section 1.3
hereof.
In the event that the Executive's employment is terminated by the
Executive for other than Good Reason, the Executive agrees to
give sixty (60) days advance written notice to the Company.
Termination by Executive Upon Change in Control. The
Executive's employment may be terminated during the Term by the
Executive for Good Reason following a Change in Control, by
giving sixty (60) days written notice to the Company. For
purposes of this Agreement, the following circumstances shall
constitute a "Change in Control":
the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of 50% or more (on a fully
diluted basis) of either (i) the then outstanding shares of Com
mon Stock of the Company, taking into account as outstanding for
this purpose such common stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt,
and the exercise of any similar right to acquire such common
stock or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors; provided, however, that for purposes
of this subsection (a), the following acquisitions shall not
constitute a Change in Control: (i) any acquisition by the
Company or any "affiliate" of the Company, within the meaning of
17 C.F.R. 230.405 (an "Affiliate"), or (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Affiliate of the Company;
consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of
the Company; or
approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Effect of Termination.
In the event of termination of Executive's employment by either
party for any reason, or by reason of the Executive's death or
disability, the Company shall pay to Executive (or his
beneficiary in the event of his death) any base salary or other
compensation earned but not paid to Executive prior to the
effective date of such termination.
In the event of termination of Executive's employment (i) by the
Company other than for Cause or (ii) by Executive for Good Reason
(each, a "Wrongful Termination"), the Company shall continue to
pay to Executive the Executive's Base Salary through the eighteen
month anniversary date of the termination of Executive's
employment in accordance with Section 3.1 hereof and shall pay to
Executive an amount equal to Executive's then current bonus, in
twelve equal monthly installments following the date of such
termination. For this purpose, Executive's then current bonus
shall be 40% of Executive's Base Salary for the Fiscal Year of
the Company within which such termination occurs. In addition,
upon any Wrongful Termination, all outstanding options to
purchase Common Stock granted to Executive under the Kenneth Cole
Productions 1994 Stock Option Plan (the "Stock Option Plan") or
otherwise shall become immediately vested and exercisable.
In the event of termination of Executive's employment by
Executive for Good Reason following a Change in Control, the
Company shall pay to Executive, in addition to the amounts
described in Section 5.6(a) hereof, an amount equal to one year's
then current Base Salary and then current bonus, in twelve equal
monthly installments following the date of such termination. For
this purpose, Executive's then current bonus shall be 40% of
Executive's Base Salary for the Fiscal Year of the Company within
which such termination occurs. In addition, upon any such
termination, all outstanding options to purchase Common Stock
granted to Executive under the Stock Option Plan or otherwise
shall become immediately vested and exercisable.
In the event any payment or benefit received or to be received by
Executive pursuant to this Agreement or any other compensation
plan or agreement between Executive and the Company or its
affiliates in connection with a Change in Control ("Change in
Control Payments") would not be deductible in whole or in part
for federal income tax purposes by reason of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), such
Change in Control Payments may, in the sole discretion of the
Committee, be reduced by the minimum amount necessary to preserve
the deductibility of such Change in Control Payments. For
purposes of this limitation, (i) no portion of the Change in
Control Payments shall be taken into account which, in the
opinion of tax counsel selected by the Company and reasonably
acceptable to the Executive, does not constitute an excess
parachute payment within the meaning of Section 280G(b)(2) of the
Code; (ii) in the event the Compensation Committee elects to
reduce the Change in Control Payments, the Change in Control
Payments shall be reduced only to the extent necessary so that
the Change in Control Payments are not subject to disallowance of
deductions, in the opinion of the tax counsel referred to in
clause (i); and (iii) the value of any non-cash benefit or any
deferred payment or benefit included in the Change in Control
Payments shall be determined by the Company's independent
auditors in accordance with the principles of Section 280G(b)(3)
and (4) of the Code and the regulations thereunder.
Except as expressly provided in Section 5.6(b) and Section
5.6(c), Executive's rights upon termination of employment with
respect to option awards received under the Stock Option Plan
shall be governed by the terms and conditions of the Stock Option
Plan and any option agreements entered into by Executive with
respect to such awards.
Miscellaneous
Life Insurance. Executive agrees that the Company may apply
for and secure and own insurance on Executive's life (in amounts
determined by the Company). Executive agrees to cooperate fully
in the application for and securing of such insurance, including
the submission by Executive to such physical and other
examinations, and the answering of such questions and furnishing
of such information by Executive, as may be required by the
carrier(s) of such insurance. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to
obtain any insurance for or on behalf of Executive, except as
provided in Section 3.3(a) hereof.
Benefit of Agreement; Assignment; Beneficiary.
This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, including, without
limitation, any corporation or person which may acquire all or
substantially all of the Company's assets or business, or with or
into which the Company may be consolidated or merged. This
Agreement shall also inure to the benefit of, and be enforceable
by, the Executive and his personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any
amount would still be payable to the Executive hereunder if he
had continued to live, all such amounts shall be paid in
accordance with the terms of this Agreement to the Executive's
beneficiary, devisee, legatee or other designee, or if there is
no such designee, to the Executive's estate.
The Company shall require any successor (whether direct or
indirect, by operation of law, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place.
Notices. Any notice required or permitted hereunder shall be
in writing and shall be sufficiently given if personally
delivered or if sent by telegram or telex or by registered or
certified mail, postage prepaid, with return receipt requested,
addressed: (a) in the case of the Company to Kenneth Cole
Productions, Inc., 152 West 57th Street, New York, New York,
Attention: President, or to such other address and/or to the
attention of such other person as the Company shall designate by
written notice to Executive; and (b) in the case of Executive, to
Paul Blum, 142 High Street, Hastings-On-Hudson, New York 10706,
or to such other address as Executive shall designate by written
notice to the Company. Any notice given hereunder shall be
deemed to have been given at the time of receipt thereof by the
person to whom such notice is given.
Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties hereto with respect to the terms
and conditions of Executive's employment during the term and
supersedes any and all prior agreements and understandings,
whether written or oral, between the parties hereto with respect
to compensation due for services rendered hereunder. This
Agreement may not be changed or modified except by an instrument
in writing signed by both of the parties hereto, except that the
Company reserves the right in its sole discretion to make changes
at any time to the other documents, plans and policies referenced
in this Agreement. The parties agree that nothing herein shall
give rise to any obligations with respect to the Prior Agreement
and they expressly waive any rights they may have with respect to
the replacement and termination of the Prior Agreement by this
Agreement.
Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as
a continuing waiver or as a consent to or waiver of any
subsequent breach hereof.
Headings. The Article and Section headings herein are for
convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the internal laws
of the State of New York without reference to the principles of
conflict of laws. Should any disagreement, claim or controversy
arise between the Executive and the Company with respect to this
Agreement or the termination hereof, the same shall be settled by
arbitration in New York, New York before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and the award of the arbitrator with
respect to a termination pursuant to this Agreement shall be
enforceable in any court of competent jurisdiction and shall be
binding upon the parties hereto, except that the Company may seek
equitable relief with respect to any breaches of Article IV of
this Agreement.
Agreement to Take Actions. Each party hereto shall execute and
deliver such documents, certificates, agreements and other
instruments, and shall take such other actions, as may be
reasonably necessary or desirable in order to perform his or its
obligations under this Agreement or to effectuate the purposes
hereof.
Attorneys' Fees. In the event of any arbitration or legal
proceeding between the parties hereto arising out of the subject
matter of this Agreement, including any such proceeding to
enforce any right or provision hereunder, which proceeding shall
result in the rendering by an arbitration panel or court of a
decision in favor of Executive, the Company shall pay to
Executive all costs and expenses incurred therein by Executive,
including, without limitation, reasonable attorneys' fees, which
costs, expenses and attorneys' fees shall be included in and as a
part of any award or judgment rendered in such arbitration or
legal proceeding.
Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement
to the extent necessary to the intended preservation of such
rights and obligations.
Validity.
The invalidity or unenforceability of any provision or provisions
of this Agreement shall not affect the validity or enforceability
of any other provision or provisions of this Agreement, which
shall remain in full force and effect.
If the event that any of the provisions of this Agreement
relating to the temporal scope of the covenants contained herein
shall be declared by a court of competent jurisdiction to exceed
the maximum restrictiveness such court deems enforceable, such
provision shall be deemed, for purposes of the proceedings before
such court, to be replaced herein by the maximum restriction
deemed enforceable by such court.
Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Agreement as of the date first above written.
KENNETH COLE PRODUCTIONS, INC.
By:
Name:
Title:
______________________________
Paul Blum
Kenneth Cole
Productions, Inc.
Exhibit 21.01
List of Subsidiaries State of Incorporation
Cole 57th. Street, LLC Delaware
Cole 610 Fifth Avenue, LLC Delaware
Cole Amsterdam, B.V. Amsterdam
Cole Amsterdam, Inc. Delaware
Cole Aspen, Inc. Deleware
Cole Boca, Inc. Florida
Cole Broadway, Inc. New York
Cole Cabazon, Inc. California
Cole Camarillo, LLC Delaware
Cole Carlsbad, Inc. Delaware
Cole Century City, Inc. California
Cole Chestnut, Inc. Delaware
Cole Clinton, Inc. Connecticut
Cole Copley, Inc. Massachusetts
Cole Dadeland, Inc. Florida
Cole Dawsonville, Inc. Delaware
Cole Destin, Inc. Florida
Cole Fashion Valley, Inc. Delaware
Cole Forum, Inc. Delaware
Cole Franklin, Inc. Delaware
Cole Galleria, Inc. Delaware
Cole Garden State, Inc. Delaware
Cole Georgetown, Inc. District of Columbia
Cole Grand Central, Inc. Delaware
Cole Grant, Inc. Delaware
Cole Honolulu, Inc. Delaware
Cole Houston, Inc. Delaware
Cole Jersey Gardens LLC Delaware
Cole Katy, LLC Delaware
Cole Las Vegas, Inc. Delaware
Cole Leesburg, Inc. Delaware
Cole Michigan Avenue, Inc. Delaware
Cole Napa, Inc. California
Cole New Orleans, Inc. Delaware
Cole Newbury, Inc. Massachusetts
Cole NorthPark, Inc. Texas
Cole Oakbrook, Inc. Delaware
Cole Orlando, Inc. Delaware
Cole Orlando, LLC Delaware
Cole Pentagon, Inc. Virginia
Cole Phipps, Inc. Georgia
Cole Pike, Inc. Delaware
Cole Productions, Inc. Delaware
Cole Reading Outlet, Inc. Pennsylvania
Cole Riverhead, Inc. Delaware
Cole Roosevelt, Inc. New York
Cole Santa Monica, Inc. Delaware
Cole Sawgrass, Inc. Florida
Cole Scottsdale, Inc. Delaware
Cole SFC, LLC Delaware
Cole Short Hills, Inc. New Jersey
Cole Somerset, Inc. Michigan
Cole South Beach, Inc. Florida
Cole Stanford, Inc. California
Cole Tempe, LLC Delaware
Cole Tyson, Inc. Virginia
Cole Venetian, LLC Delaware
Cole Viejo LLC Delaware
Cole Waikele, Inc. New York
Cole Walnut Street, Inc. Delaware
Cole West Palm Beach, LLC Delaware
Cole Westchester, Inc. New York
K.C.P.L., Inc. Delaware
Kenneth Cole (BVI) Company Limited British Virgin Islands
Kenneth Cole (BVI) Company, Ltd. British Virgin Islands
Kenneth Cole Catalog, Inc. Virginia
Kenneth Cole Financial Services, Inc. New Jersey
Kenneth Cole Gilroy, Inc. California
Kenneth Cole Productions, (LIC), Inc. Bahamas
Kenneth Cole Productions, Inc New York
Kenneth Cole Productions, LP Delaware
Kenneth Cole Services, Inc. Delaware
Kenneth Cole Woodbury, Inc. Delaware
Kenneth Cole, Inc. New York
Kenneth Productions, Inc. Delaware
Kenth Ltd. Hong Kong
Riviera Holding, LLC Delaware
Exhibit
23.01
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in
Registration Statement (Form S-8 No. 33-92094) pertaining
to the Kenneth Cole Productions, Inc. 1994 Stock Option
Plan and Registration Statement (Form S-8 No. 33-31868)
pertaining to the Kenneth Cole Productions, Inc. Employee
Stock Purchase Plan of our report dated March 13, 2001,
with respect to the consolidated financial statements and
schedule of Kenneth Cole Productions, Inc., included in
the Annual Report (Form 10-K) for the year ended December
31, 2000, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
New York, New York
March 27, 2001